Methods and apparatus relating to the formulation and trading of risk management contracts

ABSTRACT

Methods and apparatus which deal with the management of risk relating to specified, yet unknown, future events are disclosed.  
     ‘Sponsor’ stakeholders specify a particular product relating to an event or phenomenon for which there is a range of possible future outcomes.  
     ‘Ordering’ stakeholders then offer contracts relating to the predetermined phenomenon and corresponding range of outcomes. The offered contracts specify an entitlement or (pay-off) at the future time of maturity for each outcome, and a consideration (or premium) payable, in exchange, to a ‘counter-party’ stakeholder.  
     Independently of the offered contracts, the ‘counter-party’ stakeholders input data as to their view of the likelihood of occurrence of each outcome in the predetermined range into the future, or specifically at the predetermined date of maturity.  
     Each offered contract is priced by the processing units by calculating counter-party premiums from the registered data, and a match attempted by a comparison of the offered premium with the calculated premiums.  
     Matched contracts can be further traded until maturity, and at-maturity processing handles the exchange of entitlement as between the matched parties to the contract.

[0001] This application is a continuation-in-part of U.S. Ser. No.08/070,136, and further claims priority via PCT/AU95/00827, all commonlyowned. Both U.S. Ser. No. 08/070,136 and PCT/AU95/00827 are incorporatedby reference in their entireties herein.

TECHNICAL FIELD

[0002] This invention relates to methods and apparatus, includingelectrical computers and data processing systems applied to financialmatters and risk management. In particular, the invention is concernedwith the management of risk relating to specified, yet unknown, futureevents.

BACKGROUND ART

[0003] Individuals and enterprises are continually exposed to riskbecause of future events beyond their control. The outcome of thoseevents can either positively or negatively impact on their wellbeing.

[0004] Individuals and enterprises should generally prefer not to faceexposure to the possibility of adverse consequences, regardless of theirperception of the likelihood of such events occurring. It is in theirinterest to consider foregoing ‘resources’ they currently possess ifdoing so would reduce the possibility of being so greatly exposed tofuture outcomes.

[0005] Risk can take many forms in view of the large range and type offuture events which might result in adverse consequences. Risk can becategorised, in one instance, as ‘economic’ in nature. Phenomena thatconstitute economic risk include: commodity prices, currency exchangerates, interest rates, property prices, share prices, inflation rates,company performance, and market event based indices.

[0006] Another characterisation of risk concerns ‘technical’ phenomena.This can include things like the breakdown of an electricity generationplant, aircraft engine failure, and the damage to, or failure of,orbiting telecommunications satellites. The outcomes for each of thesephenomena will be adverse for the users and/or supplier.

[0007] Other forms of risk defy ready characterisation, such asweather-based (viz., rain damage or lightning strike), or other naturaloccurrences (viz., earthquakes or iceberg collision with sea-goingvessels).

[0008] There are also less tangible risks associated with, for example,the emission of atmospheric pollutants or the disposal of intractabletoxic wastes, in the sense that the future consequences are unknown,save that there is a notion, based on current information, that theycould be adverse.

[0009] The capability to manage risk is more important today than it wasin the past, and is likely to become ever-more important into thefuture, because there is an ever increasing exposure to a wider genericrange of future phenomena beyond the control of individuals orenterprises. There is also a wider feasible range of possible futureevents, and greater uncertainty about the likelihood of occurrence,associated with any single future phenomenon viz., an increasingvolatility.

[0010] It is also thought that individuals are now more risk-averse inrecessionary times, when there are fewer available discretionaryresources to trade-off to protect themselves from such adverse futureevents.

[0011] In the prior art, individuals and enterprises faced with‘technical’ risk have hedged against future outcomes by mechanisms suchas the adoption of quality assurance practices, warranties, increasedresearch and development activity (and associated intellectual propertyrights such as patents, utility models and registered designs), thepurchase of modernised plant and equipment, and improved inventory,occupational health and safety and employer/employee relationspractices.

[0012] Consider a manufacturer of, say, integrated circuits (ICs), whichhas many clients wishing to purchase its ICs. The demand may result in adelay in delivery due to limited manufacturing capacity, therebyrequiring advance production scheduling for orders already in-hand.Typically, the manufacturer will give a warranty to a purchaser as tomeasurable performance criteria for its ICs; if a batch does not performto the specified criteria, the manufacturer is required by contract toreplace that batch. That is, a purchaser may have no interest inobtaining monetary compensation for the poor quality ICs, as thepurchaser needs the components for their own products. In that case, the‘consideration’ the warranty makes is the priority scheduling of asubstitute batch of that type of IC, possibly displacing other scheduledproduction runs, or deferring delivery to another purchaser.

[0013] Such contractual arrangements are piece-meal in nature, and canonly be struck between the manufacturer and each individual purchaser.They also leave the manufacturer exposed to claims from other customerswhose orders are delayed by the re-scheduling. The manufacturer has noconvenient mechanism available to it to hedge against such claims,perhaps by way of reserving production rights with another manufacturer,in lieu of unavailability of their own manufacturing facility.

[0014] In the face of such ‘economic’ risk, it is known for individualsand enterprises to hedge against adverse outcomes by indirect means suchas self-insurance, and directly by means such as futures contracts,forward contracts, and swaps.

[0015] There are disadvantages or limitations associated with suchavailable economic risk management mechanisms. Particularly, theyprovide, at best, only indirect approaches to dealing with the riskmanagement needs. The available mechanisms are relatively expensive, andprovide limited phenomenon coverage, and therefore cannot meet therequirements of the party seeking to hedge against such wide-rangingfuture risk. The infrastructure and pay-out costs associated withswitching between, say, a commodities market and a stock market areoften prohibitive for entities small and large alike. As a consequence,entities find themselves saddled with obligations they have littlecontrol over and cannot escape.

[0016] In respect of the “less tangible” forms of risk, an example inthe prior art of a form of management of that risk is that of ‘pollutionrights’ sold by the U.S. Environmental Protection Agency (EPA) in March1993 for the atmospheric emission of sulphur dioxide. This was done byan auction of “allowances” permitting the release into the atmosphere.By the year 1995, any company or organisation emitting sulphur dioxidein the U.S. without enough allowances to cover their total emissionswill face prosecution. This means polluters must either buy furtherallowances, or else modify or replace their plant and equipment toreduce these emissions. The EPA will regulate the total number ofallowances able to be obtained. The existing allowances have alreadybecome a valuable tradeable ‘property’ as between sulphur dioxideemitters, that is, even before the time when no further allowances willbe able to be purchased.

[0017] Management techniques for the “less tangible” forms of risk arein their infancy. The existing forms indicate an emerging demand forsystems and methods to enable effective management.

[0018] Specific examples in the prior art of patents relating to methodsand apparatus which deal with various forms of risk management includeBritish Patent No. 2 180 380, in the name of Merrill Lynch Pierce Fennerand Smith Incorporated, directed to an Automated Securities TradingApparatus (corresponding to U.S. Pat. No. 4,674,004, and further relatedto U.S. Pat. Nos. 4,346,442 and 4,376,978). Other examples include U.S.Pat. No. 4,739,478 assigned to Lazard Freres and Co., directed toMethods and Apparatus for Restructuring Debt Obligations, U.S. Pat. No.4,751,640 assigned to Citibank, N.A., directed to An AutomatedInvestment System, and U.S. Pat. Nos. 4,752,877, 4,722,055, and4,839,804 assigned to College Savings Bank directed to Methods andApparatus for Funding Future Liability of Uncertain Cost.

[0019] The present invention comes about in view of the shortcomings ofexisting risk management mechanisms, and the perceived increasingimportance of the management of risk relating to specified, yet unknown,future events.

[0020] In this sense, the invention is directed to something havingeconomic value to individuals, enterprises and societies as a whole.Methods and apparatus that provide for the management of risk offermaterial advantages by, for example, minimising adverse future outcomes,providing both a form of compensation in the event of adverse futureoutcomes, and forms of risk management not otherwise supported oravailable in the prior art, and thus have value in the field of economicendeavour.

DISCLOSURE OF THE INVENTION

[0021] The invention encompasses methods and apparatus enabling themanagement of risk relating to specified, yet unknown, future events byenabling entities (parties) to reduce their exposure to specified risksby constructing compensatory claim contract orders onyet-to-be-identified counter-parties, being contingent on the occurrenceof the specified future events. The entities submit such orders to a‘system’ which seeks to price and match the most appropriatecounter-party, whereupon matched contracts are appropriately processedthrough to their maturity.

[0022] Therefore, the invention enables parties to manage perceived riskin respect of known, yet non-predictable, possible future events. Thesefuture events may relate to measurable phenomena whose outcome isverifiable, and cannot be materially influenced by any other entityhaving a stake in that outcome.

[0023] The ability to price and match risk aversion contractsessentially comes about because of the nature of risk itself. Any numberof people will each have differing views as to the likelihood of anoutcome of some future event. This means that when each person isrequired to independently assess a range of outcomes for a specifiedfuture date, there almost always will be a variance in thoseassessments. Thus it is possible to match these expectations as betweenparties to form a contract. The potential counter-parties to an offeredcontract have the motivation of taking up an opportunity to exploitdiffering views of future outcomes to their advantage, either for somegain or, again, as a form of risk management.

[0024] It is important that the assessments as to future outcomes ofevents are made independently of any other party who could be acounter-party to a contract. The nature of the pricing and matching,therefore, is totally different to conventional negotiation or biddingas between parties.

[0025] The present invention enables entities to better manage risk, asthey are able to think more explicity about possible future eventsbeyond their control which they perceive will have adverse consequencesfor them. They will have the capacity to utilise existing resources toreduce exposure to a specific risk, and have access to a generallyavailable mechanism by which they can explicity trade-off existingassets for increased certainty about the future. They are also free todecide upon the degree to which they should make such trade-offs, and toactually effect and subsequently manage such trade-offs in a simple andlow cost manner.

[0026] Risk management contract formulation comprising the steps oforder placement, pricing and matching. An ordering party initiatescontract formulation by submitting an order that relates to a specifiedphenomenon that has a range of possible outcomes relative to a futuredate of maturity. The ordering party specifies elemental entitlements(pay-outs) due at maturity relative to the phenomenon's actual outcome,and a maximum consideration to be paid to a counterparty on matching ofa contract. Independently, potential counterparties have submittedregistering data based on their assessed probability of each possibleoutcome at maturity for the phenomenon in question. From thiscounterparty registering data, a data processing system then seeks toprice each counterparty against the ordering party's specifiedentitlement. Broadly speaking, this involves multiplying each of theelemental ordering party entitlements with the correspondingcounterparty probability and summing the results to derive counterconsiderations. The counter considerations must fall below the orderingparty's maximum consideration for there to be the possibility of amatch. Most usually a match will be made between the ordering party andthe counterparty having the lowest counter consideration.

[0027] The ordering stakeholders and counter-party stakeholders can beconsidered to be contract buyers and contract sellers respectively. Theentitlement for each outcome can be in the form of ‘money’ payoffs (bothpositive and negative) at maturity of a matched contract, or can beother types of compensation, possibly in the form of goods, services,promises, credits or warrants. The consideration, whether buyerspecified or seller calculated, can again be in the nature of a premiumor payments, or can relate to other ‘non-money’ forms of property orobligations, typically transferable when a contract is matched, althoughpossibly deferable, is until, and potentially beyond, the time ofmaturity.

[0028] In the period between the match of a contract and maturity thevarious buyers, sellers and other contract stakeholders can review anycontract to which they are a party and seek to trade that contract toother parties by the pricing and matching procedure, or variations onthe pricing and matching procedure. They would tend to do so if theirview of the future outcome of the phenomenon, being the subject of thecontract, had changed markedly, or as a means to minimise expectedlosses if some unforseen adverse trend in the present day outcome of thephenomenon has occurred. As well as trading existing contracts, furthercontracts can be offered to ‘lay off’ or avert risk. Stakeholder partiescan build up a portfolio of matched contracts and offered contracts,which are continually traded to obtain the best possible position at anytime, and that position can be continually reviewed with time.

[0029] It is further possible for offered contracts to be based on thedifference between phenomena, and so manage perceived risk as betweenthe phenomena. Elemental contract phenomena can therefore be developedto meet the most particular needs of buyers and sellers, thus creatinggreat flexibility.

[0030] In most instances the date of maturity will be predetermined by a‘product sponsor’ stakeholder, who otherwise cannot be a buyer or sellerof contracts they sponsor. Even so, it is conceivable that the date ofmaturity can be tied to a specified time from the instant a contract ismatched. This may be appropriate where the time of maturity is in thenear future, in which case offered contracts could otherwise remainunmatched following initial offer even up until the time of maturity.

[0031] Other stakeholders have executive roles in administration,guaranteeing the performance of buyers and seller, regulation,supervision and so on. In this way the number and types of buyers andsellers that can be considered in pricing and matching offered contractscan be controlled.

[0032] The invention also encompasses apparatus and method dealing withthe handling of contracts at maturity, and specifically the transfer ofentitlement.

[0033] In another preferred form, the invention provides that thephenomenon for an offered contract is specified such that the elementalentitlements for the range of outcomes are the same for each outcome. Inmathematical terms this corresponds to a shape in an x-y cartesiancoordinate system where entitlement value (y) with respect to theoutcome values (x) is a flat line. Put another way, the entitlement vs.outcome (y,x) shape has zero gradient (Δy/Δx). This type ofentitlement/outcome shape can be thought of as a form of lending (if theentitlement is positive, or borrowing if the entitlement is negative),in that the ordering party wishes to make the consideration availablefor lending now, having the expectation of receiving a known(non-contingent) entitlement in the future. Contract pricing andmatching with a counterparty can proceed as described above.

[0034] Embodiments of the invention significantly advance thestate-of-the-art of formulating and trading risk management contracts.Essentially, this is achieved by a computing/telecommunicationsinfrastructure that is capable of being accessed worldwide by anyenterprise/individual having access to a computer and telephone network.Furthermore, a virtually infinite number and range of risk typescan beaccommodated. One embodiment presents itself in a form that assistsusers in making consideration-entitlement (insurance-type) trade-offdecisions and provides a blind yet transparent price-discovery andtrading process. Through its capability to create special caselending/borrowing and exchange products, end users are also providedwith a low-cost mechanism for pricing and acquiring these productswithout the involvement of traditional intermediaries.

BRIEF DESCRIPTION OF THE DRAWINGS

[0035] A number of embodiments of the invention will now be describedwith reference to the accompanying drawings, in which:

[0036]FIG. 1 shows a block diagram of a generic ‘system’ embodying theinvention;

[0037]FIG. 2a shows a schematic block diagram of an indicative hardwareplatform supporting the system of FIG. 1;

[0038]FIG. 2b is a schematic block diagram of an alternate hardwareplatform supporting the system of FIG. 1;

[0039]FIG. 3 shows a representation of INVENTCO and its main componentparts;

[0040]FIG. 4 shows a block diagram of a subset of the components of anINVENTCO system's markets-depository (M-INVENTCO);

[0041]FIG. 5 shows a block diagram of the process components of a subsetof one type of ‘market’ (termed CONTRACT APP) which can reside withinM-INVENTCO;

[0042]FIG. 6 shows a timeline applicable to Example I;

[0043]FIG. 7 shows a timeline applicable to Example II;

[0044] FIGS. 8 to 16 show flow diagrams of the contract pricing andmatching methodology;

[0045]FIG. 17 shows a timeline applicable to Example III; and

[0046] FIGS. 18 to 40 show flow diagrams of the first to ninth processcomponents for a CONTRACT APP; and

[0047]FIG. 41 shows a timeline for Example IV; and

[0048]FIG. 42 shows a timeline for Example V.

[0049] There are a number of ‘appendices’ supporting the describedembodiments all of which form a part of this specification.

DETAILED DESCRIPTION OF A BEST MODE FOR CARRYING OUT THE INVENTION

[0050] 1. Introduction

[0051] The description firstly discusses the relation of the varioususers (stakeholders) of the ‘system’, followed by a consideration of ahardware data processing platform and peripheral input/output devices bywhich stakeholders interact with each other and the system.

[0052] This is followed by a discussion of the scope of the‘applications’ that can be supported by the system in relation to thevarious stakeholders, and the interrelation of component parts thereof.

[0053] Details as to software methodologies for implementation of theapplications supported by the system are also described, including anumber of worked examples relating to the formulation and trading ofrisk management contracts.

[0054] In the course of the detailed description reference is made to anumber of non-conventional expressions and terminologies. Forconvenience, an explanation of these is listed in Appendix A.

[0055] 2. ‘Systems’ Configurations

[0056]FIG. 1 shows a block diagram of a generic ‘system’ embodying theinvention. The various stakeholders or parties to the system 10 eachhave access to a centralised processing unit 20. The processing units 20can be constituted by one or more data processing apparatus, with eachone thereof providing access for any one or more of the variousstakeholders to applications software supported by the system 10, as allthe processing units would be interconnected. Access to the one or moredata processing apparatus is controlled by a generic form ofcommunications co-ordination and security processing unit 25.

[0057]FIG. 1 also indicates that there are a number of types ofstakeholder, and a number of individual stakeholders within eachstakeholder type. The basic types of stakeholder are described as:applications promoters 11, product sponsors 12, product ordering parties(buyers) 13, potential product counter-parties (sellers) 14,counter-party guarantors 15, regulators 16, consideration/entitlementtransfer (‘accounting’) entities 17, and miscellaneous parties 18. Thedetailed roles of each of these stakeholders will be subsequentlydescribed in greater detail at a later time. The number of types ofstakeholder represented in FIG. 1 is typically the largest that will besupported by the system 10.

[0058] An embodiment of a computer system for the system 10 is shown inFIG. 2. The core of the system hardware is a collection of dataprocessing units. In the embodiment described, the processing unit 20comprises three inter-linked data processors 93,97,104, such as the Sun670 MP manufactured by Sun Microsystems, Inc. of the USA. Eachprocessing unit 93,97,104 runs operational system software, such as SunMicrosystems OS 4.1.2, as well as applications software. Theapplications software is, in part, written around the flow diagramssubsequently described in FIGS. 8 to 16, and FIGS. 18 to 40, andaccesses, or otherwise creates, the data files as summarised in AppendixH. The processor configuration shown in FIG. 1 represents a large systemdesigned to handle the transactions of thousands of stakeholders, theinput and output data generated by those stakeholders, and riskmanagement contract pricing, matching and subsequent processingfunctions.

[0059] Each processing unit 93,97,104 is operably connected with it oneor more mass data storage units 95,100,110 to store all data receivedfrom stakeholders, and other data relating to all other softwareoperations generating or retrieving stored information. Suitable massstorage units are, for example, such as those commercially availablefrom Sun Microsystems.

[0060] A number of communications controllers 80,84,87, forming thecommunications co-ordination and security processing unit 25, arecoupled with the processing unit 20. These controllers effectcommunications between the processing units 93,97,104 and the variousexternal hardware devices used by the stakeholders to communicate dataor instructions to or from the processing units. The communicationscontrollers are such as the Encore ANNEX II, the IBM AS/400 server orthe CISCO Systems AGS+.

[0061] A large range of communications hardware products are supported,and collectively are referred to as the stakeholder input/output devices70. One amongst many of the communication devices 70 are personalcomputers 51 and associated printers 52, which have communicationsconnection with the communications controller 80 by means of a modem 50.There can also be an external host device 53, such as a mini ormainframe computer, again linked with the communications controller 80by means of a modem 54. In other forms, communications can beestablished simply by means of a tone dialing telephone 56, whichprovides for the input of instructions or data by use of the tonedialing facility itself. In the alternative, a voice connection via anoperator 75 can be effected by a conventional telephone 58. Both theseexternal devices are shown connected with the communications controller84. A further possibility is to have data transfer by means of afacsimile machine 65, in this case shown linked to the communicationscontroller 87.

[0062] In all cases, users of the input devices are likely to berequired to make use of system access password generation and encryptiondevices such as the Racal RG 500 Watchword Generator 66,67,68,69, (forpersonal use) and the Racal RG 1000, which is incorporated in amainframe computer 53. The corresponding decoding units for thesedevices are incorporated in the communications controllers 80,84,87.

[0063] The generic processing unit 20 also includes a large number of‘portable’ information recordal devices, such as printers, disc drives,and the like, which allow various forms of information to be printed orotherwise written to storage media to be transferable. This isparticularly appropriate where confirmatory documentation of matchedrisk contracts is required to be produced, either for safekeeping as ahard copy record, else to be forwarded to any one or more of thestakeholders that are a party to each individual matched contract.

[0064] The generic system 10 shown in FIG. 1 encompasses many variedconfigurations, relating not only to the number and types ofstakeholders, but also the ‘architectures’ realisable by the systemhardware and software in combination. In that sense the arrangementshown in FIG. 2a is to be considered only as broadly indicative of onetype of hardware configuration that may be required to put the inventioninto effect.

[0065] For example, FIG. 2b shows an alternative configuration that doesnot rely upon a centralised (hub) data processing unit, rather thenecessary processing is performed locally at each stakeholder site200_(n) by means of distributed software.

[0066] The ‘virtual’ level of the system 10 is termed INVENTCO. INVENTCOis a collection of one or more potentially interrelated systems, asshown in FIG. 3. Each INVENTCO system (INVENTCO SYSTEM #1 . . . INVENTCOSYSTEM #N) enables the formulation and trading of a wide range ofcontractual obligations, including risk management contracts. Thehardware configuration shown in FIG. 2, is to be understood both as arealisation for a single INVENTCO system, and equally can represent anumber of INVENTCO SYSTEMS, where the processing unit 20 is common toall and supports a number of communications co-ordination and securityunits 25, others of which are not shown, together with associatedexternal communications devices 70, also not shown.

[0067] While INVENTCO allows the formulation and trading of riskmanagement contracts, it is also responsible for processing of suchcontracts through to, and including, their maturity, and in somerespects, subsequent to maturity.

[0068] Where there are a number of INVENTCO systems, those systems maybe inter-dependent or stand-alone in nature. If inter-dependent,INVENTCO (10) is responsible for transactions between those systems.

[0069] INVENTCO and all of its component parts can be legally orgeographically domiciled in separate countries or states. Thesupra-national nature of INVENTCO enables the stakeholders to availthemselves of the risk management mechanisms independently of legaldomicile or other such restrictions that are often a feature of someconventional risk management mechanisms, subject to meeting certaincriteria regarding credit worthiness and such. Indeed, the legaldomicile, location, ownership and participating stakeholders ofINVENTCO, or any of the sub-systems, can be continually changing.

[0070]FIG. 3 further shows that each INVENTCO SYSTEM comprises aninfrastructure component, termed I-INVENTCO, and a markets depositorycomponent M-INVENTCO. I-INVENTCO is concerned with coordination ofcommunications and other security considerations, that part termedAXSCO, and also provides a network and general management system, termedVIRPRO. M-INVENTCO is a depository of authorised product-market(applications) software residing within INVENTCO under the authorisationof VIRPRO, and as distributed using I-INVENTCO.

[0071] One or more local or wide area telecommunication networks maylink VIRPRO and M-INVENTCO to AXSCO, and thus to each other. In this wayboth VIRPRO and M-INVENTCO effectively reside around AXSCO.

[0072] AXSCO therefore comprises multiple, uniquely addressedcommunications controllers linked together in a number of possible ways.In one embodiment, AXSCO is represented by the communicationsco-ordination and security processing unit 25 shown in FIG. 2. Thecomponent hardware, such as the three controllers 80,84,87 shown in FIG.2, typically are responsible for three types of operationalapplications. The first is in respect of time stamping data receivedfrom other parts of INVENTCO and data similarly transmitted to entitiesexternal of INVENTCO. The second is in respect of protecting theidentity and/or location of entities within INVENTCO from one another,and from entities external to INVENTCO. The third is responsible foroverall management of the routing of data received and to be transmittedwithin INVENTCO and to external entities thereto.

[0073] Referring now to FIG. 4, within M-INVENTCO reside differentcollections of system sponsored phenomena or ‘markets’, one collectionof which is termed CONTRACT APPS. Each CONTRACT APP within the CONTRACTAPPS ‘markets’ collection is essentially related to a specific type ofrisk management phenomenon. The purpose of individual CONTRACT APPS istwo-fold. First, to effect the trading/exchange/transfer of riskmanagement contracts (and derivatives of these transactions) betweenparticipating product ordering parties and counter-parties on termsacceptable to the parties involved, as well as to others within INVENTCOregistered as having a legitimate interest in the nature, size andcomposition of these trades/exchanges/transfers. And second, toappropriately manage all matched/confirmed contracts through to theirtime of maturity.

[0074] Individual CONTRACT APPS are responsible for performing theabove-described tasks according to the specific rules they embody,defined by their applicable stakeholders.

[0075] The role played by the various stakeholders to CONTRACT APPS,remembering that in many cases it would not be necessary to have theinvolvement of all the possible types of stakeholder, briefly stated isas follows:

[0076] (a) An application promoter is an entity having overallresponsibility for the functioning of a CONTRACT APP, having beinggranted that responsibility by VIRPRO.

[0077] (b) A product sponsor is an entity which promotes and administersthe rules of trading, and subsequent management of defined “products”selected for inclusion in a CONTRACT APP by its application promoter.

[0078] (c) An ordering party (buyer) is an entity seeking to acquire aCONTRACT APP product from a potential counter-party (seller).

[0079] (d) A counter-party (seller) is an entity potentially prepared tosatisfy the CONTRACT APP product needs of an ordering party (buyer).

[0080] (e) A guarantor is an entity guaranteeing a seller's ability tosettle or meet obligations as a result of a CONTRACT APP effected match.

[0081] (f) Regulators are entities overseeing the on-going performanceof all other stakeholders involved in a CONTRACT APP, and especiallyguarantors.

[0082] (g) Consideration/entitlement transfer (‘accounting’) entitiesare those parties with which all other CONTRACT APP stakeholdersmaintain ‘accounts’ to transfer required considerations/entitlements toor from each other.

[0083] (h) Other miscellaneous parties are those having some otherdefined stake in the functioning of a CONTRACT APP. In anyimplementation of the system, multiple numbers of each form ofstakeholder are accommodated. A detailed consideration of the nature ofCONTRACT APPS and the types of stakeholders to a CONTRACT APP is givenin Appendix B.

[0084] As shown in FIG. 5, any one CONTRACT APP consists of a cluster ofnine (and potentially more, or fewer) specific processes, these include:

[0085] (a) a process handling file administration and updating taskssupporting all other processes (termed Process 1);

[0086] (b) a process handling the receipt and processing of “primary”risk aversion contract transactions (termed Process 2);

[0087] (c) a process handling the receipt and processing of “secondary”risk aversion contract transactions (termed Process 3);

[0088] (d) a process handling the receipt and processing of“derivative-primary” risk aversion contract transactions (termed Process4);

[0089] (e) a process handling the receipt and processing of“derivative-secondary” risk aversion contract transactions (termedProcess 5);

[0090] (f) a process handling the “back office” management of all fourtypes of risk aversion contract transactions, and transactions handledby Processes 7 to 9 (termed Process 6);

[0091] (g) a process handling non-CONTRACT APP-transaction relatedconsideration, entitlement, and other “payment” obligation transfersbetween stakeholders (termed Process 7);

[0092] (h) a process handling CONTRACT APP (and authorised otherINVENTCO) stakeholder access to specialist systems to assist thestakeholder concerned to decide how best to interface with a definedelement of INVENTCO (termed Process 8); and

[0093] (i) a process handling CONTRACT APP (and authorised otherINVENTCO) stakeholder access to a range of INVENTCO-facilitated “valueadded services” (termed Process 9).

[0094] A detailed discussion of the nine CONTRACT APP processes is givenin Appendix C.

[0095] All these processes collectively access multiple data files andmultiple records within these files. A description of the variables anddata files used by Process 2, a key component process of a CONTRACT APP,is provided in Appendix CA.

[0096] The foregoing description identifies the essential inter-reactionbetween the hardware platform and the applications computer software runthereon.

[0097] A first example of the life-cycle of a risk management contractwill now be described. A further detailed discussion of the nature ofrisk management contracts is given in Appendix D.

[0098] 3. Life Cycle of Risk Management Contract: Example I

[0099] The first example of a risk management contract describes acontract to manage risk associated with faults in microprocessors. Insummary, the example shows how the system could enable one party, suchas a supplier of military standard equipment seeking to avoid theadverse consequences of faulty microprocessors (specifically, 64-bitmicroprocessors) used in that equipment to make a contract with anotherparty, such as a manufacturer of these microprocessors, who is seekingto exploit an opportunity based on their view of the future incidence offaults in the microprocessors they produce.

[0100] The specific offering is one which provides a contract orderingparty with a specified contingent entitlement to “exclusive productionwarrants” (XPWs). That is, warrants providing the holder with priorityaccess to a specified quantity of replacement and additionalmicroprocessors sourced, immediately, from a defined, different,guaranteed high-quality, production line available to the supplier inconsideration of payment of a money amount. The XPW entitlement iscontingent on the value, at contract maturity date, of a percentageindex of the proportion of 64-bit microprocessors shipped by themanufacturer, during a specified prior period, which are subsequentlydetermined to be faulty to a defined degree. The defined degree, in thiscase, is the microprocessor being fault-free, as determined bysuccessful completion of self-tests.

[0101] In this example, the relevant key stakeholders are: anapplication promoter (Demdata Inc); various product sponsors (therelevant one for the example being Demdata Inc itself); various primaryproduct ordering parties (the relevant one for the example beingDenisons); a single potential counterparty (Demdata Inc again); and anapplication regulator (the Department of Defence).

[0102] The timeline depicting the steps in the contract from the firststep, Application Specification, to the final step, Contract Settlement,is shown in FIG. 6. Appendix E contains eight detailed explanatorycharts supporting FIG. 6. This Appendix should be read together with thefollowing description.

[0103] Looking at the first step in the timeline (ApplicationSpecification) in conjunction with chart E2, it can be seen that DemdataInc established a Contract APP (Application ID 100) on 92.02.10.17.00.00(that is, in inverse order, 5 pm on Feb. 10, 1992) to deal with defectliability management. Application ID 100 supports a range of products(Applicable Product ID's 1200-1250).

[0104] Looking at the second step in the timeline (ProductSpecification) in conjunction with chart E3, it can be seen that Demdatawas also Product Sponsor of Product 1210 at the same time(92.02.10.17.00.00). This Product relates to the market termed: FactoryOutput Quality Indices, and to the sub-market termed 64-bitMicroprocessor Fault Tolerance Index. The maturity date for Product 1210is 95.02.10.17.00.00.00. The consideration for a specific contractinvolving Product 1210 is in the form of money (commercial bank depositsdenominated in Australian dollars). The entitlement is in the form ofExclusive Product Warrants (XPWs); these entitle the contract orderingparty to priority access over the forward production capacity of adefined, guaranteed-high-quality, 64-bit microprocessor production line.Product 1210 specifies a range of 0% to 100% in 2% increments in respectof the sub-market outcomes.

[0105] Looking at the third step in the timeline (Potential CounterpartyProduct Pricing Specifications), it can be found that Demdata is actingas the sole potential counterparty for forthcoming primary productorders dealing with Product 1210. At this point in the timeline(93.07.01.14.00.00.00), 17 months after the specification of Product1210, Demdata has currently-specified parameters for pricing potentiallyforthcoming orders for the product.

[0106] Looking at the fourth step in the timeline (Primary OrderSpecification) in conjunction with chart E4, it can be seen that anOrdering Party, Denisons, is seeking a contract (from the offeringparty, Demdata) in Product 1210 at that time (93.07.01.14.25.30.00).Chart E4 shows the specific ‘pay-off’ parameters that Denisons hasdefined for the contract it is seeking at this time, including a maximumacceptable contract consideration (premium) amount of 32,000(denominated in commercial bank, Australian dollars).

[0107] Looking at the fifth step in the timeline (Order SpecificationPricing) in conjunction with chart E5, it can be seen that Demdata(using the specified pricing parameters set at 93.07.01.14.00.00.00)prices the Denison order at 93.07.01.14.26.40.00. Demdata's pricingparameters indicate that their appropriate Defined Circumstances ID forDenisons is 14. As is shown, this ID in turn implies a Commission Rateof 1.10%, a Discount Rate of 9.90%, a particular set of Componentproduct prices and a particular set of Assessed Probabilities ofOccurrence over the range of feasible product values (outcomes).

[0108] The Contract Bid Price is calculated automatically by theapplication software in the following manner: The orderingparty-specified desired contingent entitlement amounts, i.e. the“registered data”, (covering the feasible product definition valuerange) are multiplied by the potential counterparty-specified componentproduct prices (which will rarely add to “1” because each counterpartyis endeavouring to ‘game’ potential ordering parties in different ways)to yield the corresponding number of implied contingent entitlementamounts. When added together, these figures sum to (34.110), where thebrackets signify a negative value. This figure represents an expectedfuture counterparty-entitlement payout amount (as at the designatedcontract maturity date of 95.02.10.17.00.00). The present day value ofthis figure, calculated using the specified discount rate of 9.90% perannum, is 29,220. To this amount is added the potential counterparty'sdesired flat commission amount of 1.10%, yielding a contract Bid Price(in the consideration/entitlement denomination of the product,commercial bank-denominated Australian dollars) of 29,540. No exchangerates are applicable in this case, because the ordering party, Denisons,is not seeking to deal in a consideration or entitlement denominationdifferent to the denominations formally specified for the product.Demdata's parameters calculate that a consideration bid price of 29,540will yield them a base margin on the contract of 3,180 (againdenominated in commercial bank, Australian dollars).

[0109] This margin amount is calculated in the following manner: Theordering party-specified desired contingent entitlement amounts(covering the feasible product definition value range) are multiplied bythe potential counterparty-specified assessed probabilities ofoccurrence to yield a corresponding number of net contingent entitlementvaluation amounts. When added together, these sum to (30.770). Thisamount represents an expected future counterparty-entitlement loss-onthe contract (as at the designated contract maturity date of95.02.10.17.00.00). The present value of this amount, calculated usingthe specified discount rate of 9.90% per annum, is 26,360. Thus,(ignoring for this example the margin Demdata may gain from using, insome manner, the consideration amount of 29,540 through to the time thecontract expires, and various transaction fees) the margin Demdata canexpect from entering into this contract with Denisons is theircalculated present-value indifference price of 29,540 less theircalculated present-value expected loss on the contract of 26,360 (or3,180).

[0110] The amounts in the last two rows of the table contained on E5 areused for checking that this contract, if entered into by Demdata, willnot result in them violating any self imposed portfolio valuation orcomposition limits. This notion is explained in detail in Example III.

[0111] Looking at the sixth step in the timeline (Order Matching), itcan be found that Demdata's contract bid price of 29,540 is belowDenison's specified maximum consideration price of 32,000, leading to amatching of the order at 93.07.01.14.29.10.00.

[0112] The seventh step in the timeline (Order/Contract Confirmation)can be seen to take place twelve minutes later at 93.07.01.14.38.50.00,after the system has determined that Denisons is able to (and then does)immediately pay the required consideration funds amount of 29,540 toDemdata.

[0113] Looking at the eighth step in the timeline (Contract Valuation)in conjunction with chart E6, it can be seen that a contract valuationreport for Denisons was published not much longer than one hour afterconfirmation of the contract, that is, at 93.07.01.16.00.00.00. As canbe seen, the market estimate of the future product value of the 64BMFTIndex at this moment is 38 (with a standard deviation of 4), whichimplies that this contract has an expected future value of 29,330 XPWs(with a standard deviation of 6,213).

[0114] On chart E7 it can be seen the equivalent report for Demdata Incof their expected future entitlement payout is identical to Denisons'expected future entitlement receipt (ignoring future fee payments whichmay be netted against these payments/receipts). The above-describedmarket estimate of the future product value is determined by the systemapplying a defined composite of contract-counterparty assessedprobabilities of occurrence figures drawn from the collection of alllike contracts recently matched/confirmed by the system.

[0115] The ninth step in the timeline (Contract Valuation) refers to acontract valuation report published for Denisons sixteen months later,at 94.11.15.10.00.00.00 (see chart E8). As can be seen, the marketestimate of the future product value of the 64BMFT Index at this momentis 58 (with a standard deviation of 5), which implies that this contractnow has an expected future value of 42,160 XPWs (with a standarddeviation of 6,209). This is an increase in expected future value of12,830 XPWs for Denisons since the former valuation date/time.

[0116] The tenth step in the timeline, Contract Maturity, refers to theactual determination of the product value at time of maturity,95.02.10.17.00.00.00. As can be seen on chart E9, this product value ofthe 64BMFT Index was specified by Demdata (as Product Sponsor) to be 74,implying a contract value of 100,660 XPWs to Denisons and acorresponding obligation on Demdata. The amount of 74 represents thepercentage of 64-bit microprocessors shipped by Demdata, during aspecified period some time before the designated contract maturity date,which are subsequently determined (possibly by the applicationregulator, The Department of Defence) to be faulty.

[0117] The eleventh step in the timeline involves the formal assignmentof 100,660 XPWs by Demdata to Denisons (ignoring possible fee paymentsby one or both parties).

[0118] 4. Life Cycle of Risk Management Contract: Example II

[0119] The second example describes a risk management contractassociated with the utilisation of telecommunications carrying capacity.In summary, the example shows how the system could enable one party (atelecommunications carrier) seeking to avoid the adverse consequences ofunder and over-committing their call carrying capacity between specifiedpoints (say, between the two cities, New York and Boston) to make acontract with another party (say, another telecommunications carrierwith call carrying capacity between the same two cities) similarlyprepared to hedge against the consequences of this occurring.

[0120] The specific offering is one which provides a contract orderingparty with a specified contingent entitlement to transmission time unitsbetween the hours 1200-1800 daily on the NY-Boston link within a definedfuture period (termed, Prime TTU's) upon assignment by the orderingparty—to the counterparty—of a calculated consideration amount of PrimeTTUs on the ordering party's own NY-Boston line within another definedfuture period (these defined TTUs may or may not be convertible to TTUson other city links). The TTU entitlement is contingent on the value, atcontract maturity date, of the log of the difference between theordering party's utilisation of the counterparty's network and thecounterparty's utilisation of the ordering party's network, during aspecified prior period ending on the contract maturity date.

[0121] In this example, the relevant key stakeholders are: anapplication promoter (Newcom Inc); various product sponsors (therelevant one for the example being Newcom Inc itself); various primaryproduct ordering parties (the relevant one for the example being BasstelCo.); two potential counterparties (Tasnet and Aarcom); and anapplication regulator (ITT).

[0122] The timeline depicting the steps in the contract from the firststep, Application Specification, to the final step, Contract Settlement,is shown in FIG. 7. Appendix F contains nine detailed explanatory chartssupporting FIG. 7. This Appendix should be read together with thefollowing description.

[0123] Looking at the first step in the timeline (ApplicationSpecification) in conjunction with chart F2, it can be seen that NewcomInc established a Contract APP (Application ID 001) on 93.11.01.17.00.00(that is, 5 pm on Nov. 1, 1993) to deal with hardware capacitymanagement. Application ID 001 supports a range of products (ApplicableProduct ID's 2001-2020).

[0124] Looking at the second step in the timeline (ProductSpecification) in conjunction with chart F3, it can be seen that NewcomInc was also Product Sponsor of Product 2001 at the same time(93.11.01.17.00.00). This Product relates to the market termedTelecommunications Carrying Capacity and to the sub-market termed PrimeTTUs. The maturity date for Product 2001 is 96.11.01.17.00.00.00. Theconsideration for a specific contract involving Product 2001 is in theform of “Ordering Party TTUs”. The entitlement is in the form of“Counterparty TTUs”; these entitle the contract ordering party to“transmission time units between the hours 1200-1800 daily on theNY-Boston link (within a defined future period)”. The feasible values ofPRIME TTUs are normalised in the range of −1.0 to +1.0, respectivelysignifying the proportionate utilisation of respective networks asbetween the parties to a contract.

[0125] Looking at the third step in the timeline (Potential CounterpartyProduct Pricing Specifications), one can find two other carriers, Tasnetand Aarcom, acting as potential counterparties for forthcoming primaryproduct orders dealing with Product 2001. At this point in the timeline(94.06.01.14.00.00.00), 7 months after the specification of Product2001, both Tasnet and Aarcom have currently-specified parameters forpricing potentially forthcoming orders for the product.

[0126] Looking at the fourth step in the timeline (Primary OrderSpecification) in conjunction with chart F4, it can be seen that anOrdering Party, Basstel Co., is seeking a contract, from an offeringparty, in Product 2001 at that time (94.06.01.14.25.30.00). Chart F4shows the specific parameters (entitlements) that Basstel Co. hasdefined for the contract it is seeking at this time, including a maximumacceptable contract consideration amount of 58,000 (denominated in itsown TTUs).

[0127] Looking at the fifth step in the timeline (Order SpecificationPricing) in conjunction with chart F5, it can be seen that Tasnet (usingthe specified pricing parameters set at 94.06.01.14.00.00.00) prices theBasstel Co. order at 94.06.01.14.26.40.00. Tasnet's pricing parametersindicate that their appropriate Defined Circumstances ID for Basstel Co.is 8. As is shown, this ID in turn implies a Commission Rate of 1.00%, aDiscount Rate of 9.90% per annum, a particular set of Component productprices and a particular set of Assessed Probabilities of Occurrence. Ina similar process to that described for Example I, this results in aContract Bid Price of 55,180 (denominated in Basstel Co. TTUs), whichTasnet's parameters calculate will yield them a base margin on thecontract of 10,760 (again denominated in Basstel Co. TTUs).

[0128] Still looking at the fifth step in the timeline, in conjunctionwith chart F6, it can be seen that Aarcom (again using the specifiedpricing parameters set at 94.06.01.14.00.00.00) also prices the BasstelCo. order at 94.06.01.14.26.40.00. Aarcom's pricing parameters indicatethat their appropriate Defined Circumstances ID for Basstel Co. is 9. Asis shown, this ID in turn implies a Commission Rate of 0.90%, a DiscountRate of 8.50% per annum, a particular set of Component product pricesand a particular set of Assessed Probabilities of Occurrence. Thisresults in a Contract Bid Price of 55,390 (denominated in Basstel Co.TTUs), which Aarcom's parameters calculate will yield them a base marginon the contract of 9,430 (again denominated in Basstel Co. TTUs).

[0129] Looking at the sixth step in the timeline (Order Matching) it canbe found that Tasnet's price bid of 55,180 is below Aarcom's bid of55,390 and, in turn, that the 55,180 amount is below Basstel Co.'sspecified maximum consideration price of 58,000. This leads to a formalmatching of Basstel Co,'s order by Tasnet at 94.06.01.14.29.10.00.

[0130] The seventh step in the timeline (Order/Contract Confirmation)can be seen to take place nearly ten seconds later at94.06.01.14.38.50.00, after the system has determined that Basstel Co.is able to (and then does) immediately assign the required considerationamount of 55,180 TTUs to Tasnet.

[0131] Looking at the eighth step in the timeline (Contract Valuation)in conjunction with chart F7, one can see a contract valuation reportfor Basstel Co. published about two hours after confirmation of thecontract, that is, at 94.06.01.16.00.00.00. As can be seen, the marketestimate of the future product value of the log of the differencebetween Basstel Co.'s utilization of Tasnet's network and Tasnet'sutilization of Basstel Co.'s network (during a specified prior periodending on the contract maturity date) at this moment is (0.150) (with astandard deviation of 0.023), which implies that this contract has anexpected future value of 54,236 Tasnet TTUs (with a standard deviationof 9,207). On chart F8 one can see in the equivalent report for Tasnetthat their required expected future entitlement payout is identical toBasstel Cd.'s expected future entitlement receipt (ignoring future feepayments which may be netted against these payments/receipts).

[0132] The ninth step in the timeline (Contract Valuation) refers to acontract valuation report published for Basstel Co. five months later,at 94.11.22.10.00.00.00 (see chart F9). As can be seen, the marketestimate of the future product value of the log of the differencebetween Basstel Co.'s utilization of Tasnet's network and Tasnet'sutilization of Basstel Co.'s network (during a specified prior periodending on the contract maturity date) at this moment is (0.400) (with astandard deviation of 0.010), which implies that this contract now hasan expected future value of 350,181 Tasnet TTUs (with a standarddeviation of 74,200). This is an increase in expected future value of295,945 TTUs for Basstel Co. since the former valuation date/time.

[0133] The tenth step in the timeline (Contract Maturity) refers to theactual determination of the product value at time of maturity,96.11.01.17.00.00.00. As can be seen on chart F10, this product value ofTTU's was specified by Newcom Inc (as Product Sponsor) to be (0.400),unchanged from the prior valuation date/time, implying a contract valueof 368,340 Tasnet TTUs to Basstel Co. and a corresponding obligation onTasnet. The amount is higher than the prior valuation figure due to theactual determination figure being naturally without a standard deviationelement.

[0134] The eleventh step in the timeline involves the formal assignmentof the 368,340 TTUs by Tasnet to Basstel Co. (ignoring possible feepayments by one or both parties).

[0135] 5. Primary Product Order Processing

[0136] Before describing the third, and most detailed, example,consideration will be given to the ‘core’ product (contact) ordering,pricing and matching processes. Note that expressions such as (PORD NEW)represent file names.

[0137] The flow charts in FIGS. 8 to 16 depict the processing flow ofthe matching system for primary product orders submitted by orderingparty stakeholders to a CONTRACT APP, where this APP is based upon: anEV-CE counterparty pricing regime (assuming paid consideration amountsdo not yield an income stream in their own right); a sequential ordermatching process; consideration/entitlement value dates which areimmediately after a product sponsor-designated date/time; and matchingrules which do three things: First, identify, for each ordering party'sorder, a counterparty offering the lowest price bid for an order,subject to this price being at or below the specified maximum price theordering party has indicated it is prepared to pay. Second, accommodateportfolio expected loss constraints on an ‘equivalent maturity dateproducts’, ‘same-month maturity products’, and ‘all-products’ basis. Andthird, apply the above-described matching rules on a pre-tax basis, withpartial matching of product orders, and without conditional ordermatching rules.

[0138] As shown in FIG. 8, starting at block 610, and proceeding toblock 625, the system determines which set of orders to process,authorises these orders, matches them with counterparties wherepossible, and then confirms them. As shown in blocks 1010 to 1070 inFIG. 9, the system holds newly submitted orders (PORD NEW), and allpreviously submitted, but as yet unmatched, orders which are defined asqueued orders (PORD QUEUE). Parameters and algorithms can be implementedto give the system the ability to determine whether new or queued ordersare to be processed at any time. For example, a simplistic algorithmwould be to alternate between PORD NEW and PORD QUEUE one order at atime. Another example would be to load queued orders only when there isa change in the counterparty parameters. Test 1020 checks the decisionmade in block 1010.

[0139] For new orders, the system moves to block 1030. Details of thenext recorded new order are loaded from the PORD NEW master file (block1040). The order data fields include: the ordering party identification(BID); the ordering party's own reference (BREF); the productidentification (BID) specified by the ordering party; the entitlement“payoff” function type (PAYFUNC); the parameters for the entitlement“pay off” function (PAYPARAM); a “deal type” identifier (DTID); theanonymous and manual deal identifiers (OANON and OMANUAL); the orderretention time limit (RET LIM); the maximum consideration the orderingparty is prepared to pay (MAXCONSID); the number of the account fromwhich the consideration is to be “paid” (ACC CONSID); and the number ofthe account to which any entitlement “pay off” amount is to be paid (ACCENTITL). With this information set, the system's next step is toauthorise the order. This occurs at block 1050.

[0140] Order Authorisation

[0141] Blocks 1100 to 1162 in FIG. 10 provide an expansion of block1050. Starting at block 1100 the order is assigned a uniqueidentification, which is set in the order data field OID. Beforeverifying the order, additional information is required by the system.At block 1110, details of the product (order data field PID) are loadedfrom the master file PPRODUCT (block 1120). The information includes theproduct maturity date (PMAT); the product consideration/entitlementdenomination (PC/ED); the product currency denomination (PCUR) andnational currency denomination (PNCUR); and the product limits andparameters (PMIN, PMAX, and PSTEP). The test 1130 checks that the orderparameters are consistent with the master file parameters implied by thedefined product identification (PID). Orders which fail this test arerejected at block 1140, with details of these orders being stored in themaster file PORD REJ (block 1150). In turn, the ordering party isinformed of this event (block 1160). Processing then returns to thestart of the flow chart (block 1010), ready to load the next order. Whenan order is authorised, processing continues at block 640.

[0142] In the case of a queued order being loaded (block 1060), theorder fields are set using the details stored in the queue file PORDQUEUE (block 1070). This data is a combination of new order data (asdescribed in block 1030) and the data loaded/set when the order wasoriginally verified (block 1110). Authorised order processing continueswith the order matching process at block 640.

[0143] Order Matching

[0144] Blocks 1200 to 1616 in FIGS. 11 to 15 provide an explanation ofblock 640. Orders have retention time limits, stored in the ordervariable RET LIM. Test 1200 checks that the order retention time has notexpired. If it has, the order is rejected at block 1210, with the orderdetails copied to the rejected order file (PORD REJ). The ordering partyis then informed of the rejection at block 1230, and processing returnsto the main loop via connector “A”. If the order is still valid, theorder matching process proceeds. The aim now is to find a suitablecounterparty (or counterparties) who “prices” the ordering party's“entitlement function” within the limits set by the ordering party.Starting at block 1240, the matching process described is one whichseeks to identify, for each ordering party's order, a counterpartyoffering the lowest “price bid” for an order subject to this price beingat or below the specified maximum “price” the ordering party hasindicated it is prepared to pay.

[0145] Blocks 1300 to 1370 in FIG. 12 provide an explanation of block1240. The first step is to narrow down a group of counterpartiesprepared to at least deal with the ordering party. This is described asobtaining the available counterparty short list. First the counterpartyshort list is wiped (block 1300). Next, the order data fields BID(ordering part identification) and PID (product identification) are usedto search the PDEAL LIST master file (block 1320) for all counterpartiesprepared to consider dealing with the ordering party in the specifiedproduct. Any stakeholders who have set a MANUAL or ANON flag are alsoloaded. For each counterparty selected, SID is set to the correspondingidentification. Test 1330 commences a loop which allows everycounterparty available to be dealt with in turn. For any currentlyselected counterparty (with identification set in SID), the data flowproceeds to test 1365. Where the order data field OANON has been set bythe ordering party and some stakeholder requires manual confirmation(MANUAL (SID)), the current potential counterparty is not included inthe short list. Likewise if the ordering party set OMANUAL and someother stakeholder required anonymity (ANON (SID)). In both cases, dataflow returns to test 1330. Otherwise, flow continues at block 1335. Atthis point, the system determines the applicable “defined circumstances”for the order. It uses the order data fields currently loaded andparameters set in the PSEL DC masterfile (block 1336) to determine this.At block 1340, pricing parameters including consideration/entitlementexchange rates (if applicable), commission rates, and discount rates areselected from the PSEL PRICE master file (block 1350). Using the“defined circumstances” identification (set in DCID) all potentialcounterparties can have different sets of pricing parameters specifiedbased on any of the order data fields of each order. Test 1360 checksthat all the necessary parameters have been found. It is possible thatthe counterparty, though prepared to deal with the ordering party, doesnot have a complete set of pricing parameters for the current orderspecifications. Such a counterparty is not included in the counterpartyshort list, and processing returns to test 1330. At block 1370, thecounterparty is added to the counterparty short list by including thepricing details in the variables: PRICEFUNC(SID), CR(SID), DR(SID),C-C/EDXCHANG(SID), C-CXCHANG(SID), C-NCXCHANG(SID), E-C/EDEXCHANG(SID),E-CXCHANG(SID), E-NCXCHANG(SID), MANUAL(SID), and ANON(SID). Processingthen returns to test 1330 where the next selected potential counterpartyis dealt with. When all selected potential counterparties have beenprocessed, program flow returns to block 1250. At this point a potentialcounterparty short list has been obtained.

[0146] Blocks 1400 to 1550 in FIGS. 13 and 14 depict block 1250 in moredetail, where every potential counterparty has its price offercalculated, based on their individual pricing parameters, for thecurrently loaded order. At block 1400 a loop commences allowing eachpotential counterparty in the potential counterparty shortlist to bedealt with in turn. SID is set to the identification of the counterpartycurrently selected. Test 1410 checks whether any counterparties are leftfor processing. At block 1420, the potential counterparty's price bid iscalculated. Blocks 1490 to 1550 describe this calculation in moredetail. At block 1490 the variable, INDEX, is assigned the startingvalue of the product value range (PMIN). Also, “price” is initialised tozero. Test 1500 commences a loop, where every index point in the productrange is traversed. Block 1520 calculates the pricing value returned bythe potential counterparty's pricing function, PRICEFUNC, as stored in(PRICEFUNC(SID)), at the current index point, and stores the value inP1. Block 1530 determines the pay-off amount required by the orderingparty at the current index point and stores this value in P2. At block1540, the total price at the current index point is calculated bymultiplying P1 by P2. This value is added to the running total stored inPRICE(SID). At block 1550, the index counter (INDEX) is incremented bythe product step size (PSTEP), and flow returns to the test 1500. Whenthe end of the product range has been reached (PMAX), flow proceeds toblock 1510, where the calculated price bid is modified by the followingcalculation:

PRICE(SID)=PRICE(SID)*E-C/EDXCHANG(SID)*E-CXCHANG(SID)*E-NCXCHANG(SID).

[0147] Returning to block 1430, the price bid stored in PRICE(SID) willbe in the applicable product's consideration/entitlement denomination,currency denomination, and national currency denomination. The followingsteps (block 1430-1470) determine and apply the applicable discount rateto the calculated price bid (currently in future value terms) to yield aprice bid in present value terms. This is done as follows: At block 1430the number of days to product maturity is determined. Block 1440initialises the loop counter and discount rate divisor. For each day (orappropriate part thereof) between the current date/time and the productmaturity date/time, the divisor is changed according to the formula(block 1460):

DIV=DIV*(1+((DR(SID)/100)/365))

[0148] At block 1470, the price bid is adjusted according to theformula:

PRICE(SID)=PRICE(SID)/DIV

[0149] Once the price bid in present value terms is known, the potentialcounterparty's defined commission is added to the price (block 1480).Given that CR(SID) is a percentage commission rate, the formula is:

PRICE(SID)=PRICE(SID)+((CR(SID)/100)*PRICE(SID))

[0150] When test 1410 confirms that every potential counterparty hasbeen priced, program flow continues at 1255.

[0151] The test at 1255 checks whether the order was a “quote only”order. If so, flow continues at block 1256 where one or more of thecounterparty bid prices are selected. At block 1230, the ordering partyis informed of the pricing information gathered. If the order was not aquote order (that is, it was a real product order), an attempt is nowmade to identify a counterparty from the potential counterparty shortlist matching the requirements of the current order. This is done atblock 1260. Blocks 1560 to 1616 in FIG. 15 describe this process indetail.

[0152] Starting at test 1560, a check is made to ensure the potentialcounterparty shortlist is not empty. If it is, no match is possible andflow continues at block 1612. At this point SID is assigned “0” toindicate that no counterparty was selected from the potentialcounterparty short list, before moving to block 1614 where the entireorder (as no part was matched) is queued. When the list is not empty,program flow continues at block 1570, where the lowest pricedcounterparty is selected from the counterparty short list. Thisdetermination is done based upon each potential counterparty's bid price(PRICE(SID)), being converted to the consideration/entitlement type,currency, and national currency consideration “payment” denominationssought by the ordering party (that is,PRICE(SID)=PRICE(SID)*C-C/EDXCHANG(SID)*C-CXCHANG(SID)*C-NCXCMANG(SID)).The counterparty identification is stored in SID, and its price offer isstored in BPRICE. At block 1580, the following check is made:

BPRICE>MAXCONSID

[0153] If the selected price is greater than the ordering party'sspecified maximum consideration payment (MAXCONSID) limit, a match withthe current potential counterparty is not deemed possible. This mustalso be true for any of the remaining counterparties in the counterpartyshort list. This part of the matching process returns without anypotential counterparty in the short list having been selected for amatch (block 1612). Otherwise, the current price is acceptable, and theprocess proceeds to attempt a match with the current selectedcounterparty.

[0154] The next step (block 1590), requires all the applicable contract,product, and portfolio absolute loss, expected loss, expected valuelimits, and maximum composition limits to be read from the PSEL LIMITmaster file (block 1600) and stored in ALL1(SID), ALL2(SID), ELL1(SID),ELL2(SID), ELL3(SID), ELL4(SID), ELL5(SID), EVL1(SID), MC(SID) andMCC(SID). The current absolute and expected losses accumulated are alsoread and stored in CAL2(SID), CEL2(SID), CEL3(SID), CEL4(SID), andCEL5(SID).The ELFUNC(SID) and EVFUNC(SID) values are also set for usewhen calculating the expected loss and expected value for the currentorder. Block 1602 calculates the price of the order entitlement functionusing the counterparty product expected loss and expected valueparameters ELFUNC(SID) and EVFUNC(SID). The order's expected loss isstored in EL(SID); the order's expected value is stored in EV(SID). Theabsolute loss function is also determined at block 1602 and it is storedin AL(SID). Proceeding to block 1604, the portion of the order whichwill not violate the counterparty limits is calculated. This check ismade at test 1606. If no part of the order is matched, process flowcontinues at block 1608. The potential counterparty is removed from thecounterparty shortlist.

[0155] If some portion of the order is matched with the currentcounterparty, processing continues at block 1610. Here the SID is set tothe identification of the matching counterparty. The unmatched portion(if any) is stored at block 1614 as a new order in the PORD QUEUEmasterfile (block 1616). Flow then returns to test 1261 in FIG. 11. Whena match occurs, program flow returns to block 650. The matched ordermust now be confirmed by carrying out a number of additional steps, asshown in FIG. 16, blocks 1620 to 1641. If no match occurred, processingof the current order steps, and program flow returns to the beginningvia connector “A”. The system is ready to load the next available order.

[0156] Matched Order Confirmation

[0157] For matched orders to become a contract, a number of additionalactions are required. First, at test 1620, a check for manualauthorisation is made. If required, program flow moves to block 1621where authorisation requests are sent to the relevant stakeholders.Block 1623 then tests the replies for any rejections. If one or morerejections were received, program flow continues at block 1627 where theorder is rejected. Otherwise, flow continues at 1624. Block 1624 effectsthe consideration payment by creating transactions in the payment shadowfile (PAYACC SHADOW—block 1625). However, this may fail if the accountsspecified do not exist or if at least the required consideration amountis shown not to be available. Test 1626 checks that “considerationpayment” was effected successfully. If “consideration payment” fails,the matched order is rejected (block 1627), with details stored in therejected order master file, PORD REJ (block 1628). The ordering party isthen informed of this event at block 1640.

[0158] With successful payment, program flow proceeds to block 1630where the counterparty's current accumulated absolute and expected lossfigures are updated (masterfile PSEL LIMIT—block 1631). At block 1632,the order data field OPRICE is set to the price given by thecounterparty PRICE(SID), and SPRICE set to the counterparty'sidentification, SID. At block 1634, the matched order is certified asconfirmed, with full details recorded in the masterfile PORD CONF (block1636). The next step, block 1638, reports details of the newly createdcontingent contract to all stakeholders concerned. Program flow thenreturns to the beginning, via connector “A”. The system is now ready tostart processing the next order submitted by a specified ordering party.

[0159] 6. Life Cycle of Risk Management Contract: Example III

[0160] The third example of a risk management contract describes acontract to manage risk associated with potential future movements inthe value of a specified index of share prices (termed the PTSE 75index). In summary, the example shows how the system could enable oneparty (such as an institutional fund manager) seeking to avoid theadverse consequences of a significant decline in the future value of thePTSE 75 index (specifically a decline by June 1996, relative to theassumed current (June 1991) value of the index) to make a contract withanother, as-yet-unknown, party, such as another fund manager seeking toavoid the adverse consequences of a significant corresponding increasein PTSE 75 index value.

[0161] The specific offering is one which provides a contract orderingparty with a specified contingent entitlement to a compensatoryAustralian dollar future payout upon payment of a calculated up-frontconsideration money amount by the ordering party to the as-yet-unknowncounterparty. The future money entitlement is contingent on the value,at contract maturity date, of the independently-determined value of thePTSE 75 index.

[0162] In this example, the relevant key stakeholders are: anapplication promoter (BLC Inc); various product sponsors (the relevantone for the example being BLC Inc itself); various product orderingparties (the relevant ones for the example being Abbotts & Taylor andShearer & Associates); various potential counterparties (the relevantones for the example being Abrahamsons and Carpenters Inc); acounterparty guarantor (CNZ Banking Corporation); and an applicationregulator (the Pacific Central Bank).

[0163] The timeline depicting the steps in the contract from the firststep (Application Specification) to the final step (Contract Settlement)is shown in FIG. 17. Appendix G contains thirteen detailed explanatorycharts supporting FIG. 17. This Appendix should be read together withthe following description.

[0164] Looking at the first step in the timeline (ApplicationSpecification) in conjunction with chart G2, it can be seen that BLC Incestablished a Contract APP (Application ID 001) on 91.06.03.17.00.00(that is, 5 pm on Jun. 3, 1991) to deal with economic risk management.Application ID 001 supports a range of products (Applicable Product ID's10020-11400).

[0165] Looking at the second step in the timeline (ProductSpecification) in conjunction with chart G3, it can be seen that BLC Incwas also Product Sponsor of Product 10061 at the same time(91.06.03.17.00.00). This Product relates to the Market termed StockIndices and to the Sub-market termed PTSE 75. The maturity date forProduct 10061 is 94.06.03.17.00.00.00. The consideration for a specificcontract involving Product 10061 is in the,form of money (commercialbank deposits denominated in Australian dollars). The entitlement isalso in the form of commercial bank deposits denominated in Australiandollars, payable (if necessary) immediately after the Product'sspecified maturity date/time.

[0166] Looking at the third step in the timeline (Potential CounterpartyProduct Pricing Specifications), one can find two entities, Abrahamsonsand Carpenters Inc, acting as potential counterparties for forthcomingprimary product orders dealing with Product 10061. At this point in thetimeline (95.01.01.17.00.00.00), 19 months after the specification ofProduct 10061, both Abrahamsons and Carpenters Inc havecurrently-specified parameters for pricing potentially forthcomingorders for the product.

[0167] Looking at the fourth step in the timeline (Primary OrderSpecification), in conjunction with chart G4, it can be seen that anOrdering Party, Abbotts & Taylor, is seeking a contract, from anoffering party, in Product 10061 at that time (95.01.01.17.37.06.00).chart G4 shows the specific parameters (entitlement) that Abbotts &Taylor has defined for the contract it is seeking at this time,including a maximum acceptable contract consideration amount of 54,000(denominated in commercial bank, Australian dollars).

[0168] In order to provide a more detailed explanation of the followingfifth to seventh steps in the timeline, selected processing blocknumbers from FIGS. 8-16 will be referred to in brackets as follows: “[]”.

[0169] Looking at the fifth step in the timeline (Order SpecificationPricing) in conjunction with chart C5, it can be seen that Abrahamsons'specified pricing parameters, as set at 95.01.01.17.37.06.00 are used toprice the Abbotts & Taylor order at 95.01.01.17.38.02.00. Abrahamsons'pricing parameters indicate that their appropriate Defined CircumstancesID for Abbotts & Taylor is 26 [1240]. As is shown, this ID in turnimplies a Commission Rate of 1.25%, a Discount Rate of 10.00% per annum,a particular set of Component product prices and a particular set ofAssessed Probabilities of Occurrence. In a similar process to thatdescribed for Example I, this results in a Contract Bid Price of 51,920(denominated in commercial bank, Australian dollars), which Abrahamsons'parameters calculate will yield them a base margin on the contract of4,580 (again denominated in commercial bank, Australian dollars) [1250].

[0170] Still looking at the fifth step in the timeline, in conjunctionwith chart G6, it can be seen that Carpenters Inc specified pricingparameters, as set at 95.01.01.17.37.06.00, are also used to price theAbbotts & Taylor order at 95.01.01.17.38.02.00. Carpenters Inc's pricingparameters indicate that their appropriate Defined Circumstances ID forAbbotts & Taylor is 17 [1240]. As is shown, this ID in turn implies aCommission Rate of 1.30%, a Discount Rate of 9.80% per annum, aparticular set of Component product prices and a particular set ofAssessed Probabilities of Occurrence. This results in a Contract BidPrice of 53,050 (denominated in commercial bank, Australian dollars),which Carpenters Inc's parameters calculate will yield them a basemargin on the contract of 5,610 (again denominated in commercial bank,Australian dollars) [1250].

[0171] Again, still looking at the fifth step in the timeline, inconjunction with chart G7, it can be seen that Abrahamsons'pricing-related parameters (also set at 95.01.01.17.37.06.00) fordetermining the acceptability of ordered-contracts on the basis of theirabsolute loss, expected loss, expected value, and maximum portfoliocomposition attributes are satisfied by Abbotts & Taylor's order [1604].From Abrahamsons' perspective, this qualifies Abbotts & Taylor's orderfor inclusion in their product/contract portfolio, as long asAbrahamsons' consideration price bid turns out to be lower thanCarpenters Inc's price bid, and, in turn, this bid is below the maximumconsideration price that Abbotts & Taylor has specified, in its orderspecification (chart G4), it is prepared to pay.

[0172] Finally, still looking at the fifth step in the timeline, but nowin conjunction with chart G8, it can be seen that Carpenters Inc'spricing-related parameters (set at 95.01.01.17.37.06.00) for determiningthe acceptability of ordered-contract on the basis of their absoluteloss, expected loss, expected value, and maximum portfolio compositionattributes are also satisfied by Abbotts & Taylor's order. Now, fromCarpenters Inc's perspective, this qualifies Abbotts & Taylor's orderfor inclusion in their product/contract portfolio, in this case, as longas Carpenters Inc's consideration price bid turns out to be lower thanAbrahamsons' price bid, and, in turn, this bid is below the maximumconsideration price that Abbotts & Taylor has specified, in its orderspecification (Page G4), it is prepared to pay.

[0173] Looking at the sixth step in the timeline (Order Matching), itcan be found that Abrahamsons' price bid of 51,920 is below CarpentersInc's bid of 53,050 and, in turn, that the 51,920 amount is belowAbbotts & Taylor's specified maximum consideration price of 54,000. Thisleads to a formal matching of Abbotts & Taylor's order by Abrahamsons'at 95.01.01.17.38.07.00 [1260].

[0174] The seventh step in the timeline (Order/Contract Confirmation)takes place five seconds later at 95.01.01.17.38.11.00, after the systemhas determined that Abbotts & Taylor is able to (and then does)immediately pay the required consideration funds amount of 51,920 toAbrahamsons [650].

[0175] Looking at the eighth step in the timeline (Contract Valuation)in conjunction with chart G9, one can see a contract valuation reportfor Abbotts & Taylor published nearly six hours after confirmation ofthe contract, that is, at 95.01.01.23.00.00.00. As can be seen, themarket estimate of the future product value of the PTSE 75 Index at thismoment is 1970 (with a standard deviation of 333), which implies thatthis contract has an expected future value of 53,000 commercialbank-denominated Australian dollars (with a standard deviation of21,160). On chart G10 one can see in the equivalent report forAbrahamsons that their required expected future entitlement payout isidentical to Abbotts & Taylor's expected future entitlement receipt(ignoring future fee payments which may be netted against thesepayments/receipts).

[0176] The ninth step in the timeline (Secondary Order Specification),detailed on chart G11, occurs nearly six months after theabove-described contract valuation event; that is, at95.06.06.08.00.00.00. At this time, Abbotts & Taylor is seeking to sellits position in the contract which was matched/confirmed at95.01.01.17.38.11.00 (and at that time assigned the Order ID of9156515800 by the system) at a price better than 57,000. Shearer &Associates is prepared to pay 60,000 (commercial bankdeposit-denominated Australian dollars) for this position. In all otherrespects the contract's attributes remain unchanged. On chart G12, thetenth step in the timeline, a contract sale is seen to have occurred ata price of 58,300, just below the above-described 60,000 upper limitpurchase-price amount specified by Shearer & Associates. This amount isthe current best estimate of the contract's expected future value, withthe standard deviation of this expected future value calculated by thesystem, utilizing other recent transaction data, as being 10,610.Shearer & Associates has now formally taken the place of Abbotts &Taylor as a stakeholder to the contract.

[0177] The eleventh step in the timeline (Contract Valuation) refers toa contract valuation report published for Shearer & Associates sevenmonths later, at 96.01.01.17.00.00.00 (see chart G13). As can be seen,the market estimate of the future product value of the PTSE 75 Index atthis moment is 1800 (with a standard deviation of 283), which impliesthat this contract now has an expected future value of 162,360commercial bank deposit-denominated Australian dollars (with a standarddeviation of 35,160). This is an increase in expected future value of104,060 for Shearer & Associates since the former valuation date/time.The above-described market estimate of the future product value isdetermined by the system applying a defined composite ofcontract-counterparty assessed probabilities of occurrence figures drawnfrom the collection of all like contracts recently matched/confirmed bythe system.

[0178] The twelfth step in the timeline (Contract Maturity) refers tothe actual determination of the product value at time of maturity,96.06.03.17.00.00.00. As can be seen on chart G14, this product value ofthe PTSE Index was specified by BLC Inc (as Product Sponsor) to be 1820,implying a contract value of 187,200 (commercial bankdeposit-denominated Australian dollars) to Shearer & Associates, and acorresponding obligation on Abrahamsons. The figure of 1820 representsthe actual value of the PTSE share price index at 96.06.03.17.00.00.00as obtained by BLC Inc from the independently verifiable informationsource, the identity of which they would have disclosed at the time theyfirst announced their sponsorship of trading in the PTSE 75 share indexproduct.

[0179] The thirteenth step in the timeline involves the formal paymentof 187,200 (commercial bank deposit-denominated Australian dollars) byAbrahamsons to Shearer & Associates (ignoring possible fee payments byone or both parties).

[0180] Life Cycle of Economic Management Contract: Example IV

[0181] This further example of a risk management contract is anextension of Example III. More particularly, however, it is a specialcase of the general case of Example III, in that for a particularphenomenon the same entitlement is specified by the ordering party foreach of the possible outcomes. This is a case where X=1, α(X) is notapplicable, β(X)= the specified non-contingent entitlement (constant),and γ(X)=11, where “11” denotes a mathematical shape that is astraightline with respect to the ‘outcome’axis, drawn from a menu ofsuch shapes. Put another way, the gradient of the graph of entitlement(y−axis) against outcome (x−axis) is zero.

[0182] The counterparty registering data remains the same as for ExampleIII. It can be thought of as the scenario where the outcome is not ofconcern to the ordering party. When its future entitlement is positive,the contract, from the ordering party's view, is in the nature of aloan, in that the consideration is made available now for a future knownentitlement. It is of course possible for the consideration andentitlement to be negative so that the nature of the contract from theordering party's viewpoint is borrowing.

[0183] The example shows just this situation, in that one party (such asan institutional fund manager) seeks to avoid the adverse consequencesof not having immediate possession of a defined resource (say,Australian dollars) by becoming a party to a contract with another,as-yet-unknown, party (such as another fund manager seeking to avoid theadverse consequences of being unable to adequately utilise the definedresource).

[0184] The specific contract offering is one which provides an orderingparty with a specified non-contingent obligation (that is, a negativefuture entitlement) to make an Australian dollar future payout to thecontract's counterparty upon that counterparty's payment of a calculatedup-front consideration money amount to the ordering party.

[0185] Thus, for a given guaranteed entitlement payout amount by theordering party to its counterparty on a contract's maturity date, theup-front consideration payment is essentially a function of two mattersimplicitly determined between the ordering party and the counterpartyregistering data:

[0186] 1. The discount (interest) rate applicable to the contract (thiswill itself be credit risk-free Australian dollar instruments with thesame maturity date, plus a margin reflecting the counterparty'sassessment of the likelihood of default by the ordering party in makingtheir required future entitlement payment in Australian dollars);

[0187] 2. The counterparty's sought-after commission on the transaction.

[0188] Note that if, say, the contract entitlement is based in USdollars, the matter of the counterparty's defined forward Australiandollar/U.S. dollar exchange rate would also be relevant.

[0189] As noted, the relevant key stakeholders are the same as inExample III: an application promoter (BLC Inc); various product sponsors(the relevant one for the example being BLC Inc itself); various productordering parties (the relevant ones for the example being Abbotts &Taylor and Shearer & Associates); various potential counterparties (therelevant ones for the example being Abrahamsons and Carpenters Inc); acounterparty guarantor (CNZ Banking Corporation); and an applicationregulator (the Pacific Central Bank).

[0190] A timeline depicting the steps in the contract from the firststep, Application Specification, to the final step, Contract Settlement,is shown in FIG. 41 and further supported by charts H2-H6.

[0191] Looking at the first step in the timeline, ApplicationSpecification, in conjunction with chart H2, we see that BLC Incestablished a Contract APP (Application ID 001) on 91.06.03.17.00.00(that is, 5 pm on Jun. 3, 1991) to deal with economic risk management.The application involves a pricing and matching objective function of:“minimise pre-tax consideration payment under an expected value(EV)/certainty equivalent (CE) value”. Note that a negativeconsideration payment is allowed.

[0192] Looking at the second step in the timeline, ProductSpecification, in conjunction with chart H3, we see that BLC Inc wasalso product sponsor of Product 10061 at the same time(91.06.03.17.00.00). This product relates again to the market of stockindices. The maturity date for Product 10061 is 96.06.03.17.00.00.00.The sub-market is the PTSE 75 stock index. The consideration for aspecific contract involving Product 10061 is in the form of money(commercial bank deposits denominated in Australian dollars). Theentitlement is also in the form of commercial bank deposits denominatedin Australian dollars, payable immediately after the product's specifiedmaturity date/time.

[0193] Looking at the third step in the timeline, Potential CounterpartyProduct Pricing Specifications, one can find two entities, Abrahamsonsand Carpenters Inc, acting as potential counterparties for forthcomingprimary product orders dealing with Product 10061. At this point in thetimeline (95.01.01.17.00.00.00), 43 months after the specification ofProduct 10061, both Abrahamsons and Carpenters Inc havecurrently-specified parameters for pricing potentially forthcomingorders for the product.

[0194] Looking at the fourth step in the timeline, Primary OrderSpecification, in conjunction with chart H4, it can be seen that Abbotts& Taylor is seeking a contract in Product 10061 at that time(95.01.01.17.37.06.00). Chart H4 shows the specific parameters thatAbbotts & Taylor has defined for the contract it is seeking at thistime, namely $A 83,830 for any feasible product value including aminimum acceptable contract consideration amount of ($A 55,000). Theparentheses indicate that the consideration is negative. The calculatedcounter consideration (≧$A 55,000 ) will be paid by the counterparty toAbbotts & Taylor immediately after contract matching.

[0195] Looking at the fifth step in the timeline, Order SpecificationPricing, in conjunction with chart H5, it can be seen that Abrahamsons(using the specified pricing parameters set at 95.01.01.17.37.06.00)prices the Abbotts & Taylor order at 95.01.01.17.38.02.00. Abrahamsons'pricing parameters, indicated by their defined circumstances ID of 31,require a commission rate of 1.25% and a discount rate of 10.00% pa. Aparticular set of component product prices together with a particularset of assessed probabilities of occurrence are specified. This resultsin a counter consideration of ($A 58,710), which Abrahamsons' parameterscalculate will yield them a base margin on the contract of $A 1,980.

[0196] Still looking at the fifth step in the timeline, in conjunctionwith chart H6, it can be seen that Carpenters Inc (again using thespecified pricing parameters set at 95.01.01.17.37.06.00) also pricesthe Abbotts & Taylor order at 95.01.01.17.38.02.00. Carpenters Inc'spricing parameters, indicated by their defined circumstances ID of 19,require a commission rate of 1.30% and a discount rate of 9.8% pa. Aparticular set of component product prices and a particular set ofassessed probabilities of occurrence are specified. This results in acontract bid price of ($A 58,640), which Carpenters Inc's parameterscalculate will yield them a base margin on the contract of $1,990.

[0197] Looking at the sixth step in the timeline, Primary OrderMatching, it can be found that Abrahamsons' price bid of ($A 58,710) isabove Carpenters Inc's bid of ($A 58,640) and above Abbotts & Taylor'sspecified minimum consideration price of ($A 55,000). This leads to aformal matching of Abbotts & Taylor's order by Abrahamsons at95.01.01.17.38.07.00. Before the matching formally occurs, a check ismade that absolute loss, expected loss, expected value and portfolioattribute limits are not violated.

[0198] The seventh step in the timeline, Contact Maturity, refers to theactual determination of the product value at time of maturity,96.06.03.17.00.00.00.

[0199] The eighth step in the timeline involves the formal payment of $A83,830 by Abbotts & Taylor to Abrahamsons.

[0200] The example just described can also be thought of as a case wherethe market is irrelevant, and therefore there is no minimum or maximumproduct definition value nor product step value. This equates to therebeing no future outcome, rather simply a known specified entitlementthat is not dependent upon the outcome of any particular phenomenon. Themathematical representation of curves or lines no longer is relevant.The counterparty counter consideration thus becomes a function only ofthe discount rate, commission and (if applicable) entitlement exchangerate.

[0201] Life Cycle of Economic Management Contract: Example V

[0202] This embodiment relates to an economic management contract (basedon a variation of Example IV) and describes the formulation of animmediate exchange contract involving an entitlement of a defined $USamount in return for a to-be-determined consideration denominated incommercial bank Australian dollars.

[0203] This example is a special case of the general case of Example IIin that it is independent of the outcome of any particular phenomenon.It has only a single outcome for which a single entitlement is specifiedby the ordering party.

[0204] Unlike Example IV, however, this case also involves a uniquenotion of a contract maturity date/time. This is the notion of “as soonas possible after the date/time the transaction is originated by theordering party”, implying an immediate exchange. That is, the date ofmaturity is now.

[0205] In this example, the offering is one which provides a contractordering party with a specified non-contingent entitlement to receiveits desired $US currency amount ($US 70,000) as soon as possible afterthe ordering party specifies it is prepared to immediately pay not morethan $A 102,900 (as a consideration) in exchange for this US currency.

[0206] In this example, the relevant key stakeholders are: anapplication promoter (BLC Inc); various product sponsors (the relevantone for the example being BLC Inc itself), various product orderingparties (the relevant ones for the example being Abbotts & Taylor),various potential counterparties (the relevant ones for the examplebeing Abrahamsons and Carpenters Inc), a counterparty guarantor (CNZBanking Corporation) and an application regulator (the Pacific CentralBank).

[0207] The timeline depicting the steps in the contract from the firststep, Application Specification, to the final step, Contract Settlement,is shown in FIG. 42, and are supported by charts J2-J6.

[0208] Looking at the first step in the timeline, ApplicationSpecification, in conjunction with chart J2, we see that BLC Incestablished a contract APP (Application ID 201) on 91.06.03.17.00.00(that is, 5 pm on Jun. 3, 1991) to deal with economic risk management.The application involves a pricing and matching objective function of:“maximise pre-tax consideration/entitlement exchange rate”. ApplicationID 201 supports a range of products.

[0209] Looking at the second step in the timeline, ProductSpecification, in conjunction with chart J3, we see that BLC Inc wasalso product sponsor of Product 11099 at the same time(91.06.03.17.00.00). This product relates to the market of immediateexchange. The maturity date for Product 11099 is “as soon as possibleafter transaction initiation”. The consideration for a specific contractinvolving Product 11099 is commercial bank deposits denominated inAustralian dollars. The entitlement is in the form of commercial bankdeposits denominated in US dollars, payable immediately after theproduct's specified maturity date/time (that is, as soon as possibleafter transaction initiation).

[0210] Looking at the third step in the timeline, Potential CounterpartyProduct Pricing Specifications, two entities, Abrahamsons and CarpentersInc, are potential counterparties for forthcoming primary product ordersdealing with Product 11099. At this point in the timeline(92.06.03.15.00.00.00), 12 months after the specification of Product11099, both Abrahamsons and Carpenters Inc have currently-specifiedparameters for pricing potentially forthcoming orders for the product.

[0211] Looking at the fourth step in the timeline, Primary OrderSpecification, in conjunction with chart J4, it can be seen that anordering party, Abbotts & Taylor, is seeking a contract from an offeringparty in Product 11099 at that time (92.06.03.17.00.00.00). Chart J4shows the specific parameters that Abbotts & Taylor has defined for thecontract it is seeking at this time, including a maximum exchange(consideration) amount of ($A 102,900) and a defined $US 70,000entitlement.

[0212] Looking at the fifth step in the timeline, Order SpecificationPricing, in conjunction with chart J5, it can be seen that the systemdetermines that the counter consideration amount Abrahamsons judge to beideal given their specified parameters is $A 94,500. This occurs at92.06.03.17.38.02.00. Abrahamsons' pricing parameters specify anexchange rate of 0.75, a commission rate of 1.25% and a single assessedprobability of occurrence of one (1) (discount rate and componentproduct prices being irrelevant in this example). The counterconsideration of $A 94,500 is lower than Abbotts & Taylor's specifiedmaximum consideration amount of $A 102,900.

[0213] Still looking at the fifth step in the timeline, in conjunctionwith chart J6, the system determines that the counter considerationamount Carpenters Inc judge to be ideal given their specified parametersis $A 101,300. Carpenters Inc's pricing parameters imply an exchangerate of 0.70, a commission rate of 1.30% and a single assessedprobability of occurrence of one (1) (discount rate and componentproduct prices again being irrelevant).

[0214] Looking at the sixth step in the timeline, Order Matching, it canbe found that the system assesses Abrahamsons' to be superior to that ofCarpenter Inc and below Abbotts & Taylor's maximum consideration. Thisleads to a formal matching of Abbotts & Taylor's order by Abrahamsoms'at 92.06.03.17.38.12.00. Matching coincides in time with maturity, andvery shortly thereafter there is the transfer of $A 94,500 fromAbrahamsons to Abbotts & Taylor and a corresponding transfer of $US70,000 from Abrahamsons to Abbotts & Taylor. This then representfinalisation of the transaction, including all the transfers involved atthe date/time of maturity of other contract types.

[0215] A further embodiment, relevant to each of the embodiments ofExamples III to V above, involves the order pricing procedure as before,followed by a step of obligating the ordering party with the would-bematched counterparty for a period of time before the match is formallymade. As before, the consideration can be payable immediately upon matchor deferred for a time (even up until maturity), and the date ofmaturity can be at a future time from matching (or even immediately uponmatch). The period of obligation can be specified by the promoterstakeholder, and thus be known to the ordering party and the registeringcounterparties. The period of obligation thus enables parties tocontract to future contingent contracts (in the case of Examples I andIV) or future exchange (in the case of Example V).

[0216] 7. Description of Consideration/Entitlement Payment Process

[0217] The purpose of the CONTRACT APP consideration/entitlement (andrelated transactions) payment/receipt process is to effect debits andcredits to INVENTCO stakeholder accounts, typically at maturity of acontract, with participating consideration/entitlement transfer (orexchange) entities, reflecting payment/receipt entitlements andobligations originated within INVENTCO. The process effects thesepayments/receipts in a two-stage process. First, by debiting/crediting,on a real-time basis, the relevant shadow records (in the data filePAYACC SHADOW) of the applicable stakeholder accounts with aparticipating consideration/entitlement transfer entity (C/E entity),external to INVENTCO, with which they maintain an account. And second,by periodically effecting, via existing and potential paymentmechanisms, corresponding payment instructions to the payment entitiesconcerned. Details of the above-described mechanism are as follows.

[0218] All INVENTCO stakeholders maintain (a minimum of) twospecial-purpose (net-credit balance only) accounts with (at least) oneselected, VIRPRO authorised, C/E transfer entity. The purpose ofspecial-purpose accounts is to ensure that only INVENTCO-initiateddebits and credits are capable of being effected to the accounts. Thus,at any time the balance of each PAYACC SHADOW file account record shouldbe equivalent to the true, but usually unknown, time-of-day balance ofthe actual account maintained by the C/E transfer entity.

[0219] The purpose of two accounts is to enable only credits to beeffected through one account and only debits through another account.And the purpose of “net-credit balance only” accounts is to ensure thataccumulated debits to the debits-only account never exceed the accountopening balance plus accumulated credits to the credits-only account.

[0220] C/E transfer entities will typically be (but do not need to be)institutions of any/all of six types: public/private record-registriesof various types; credit card companies (typically for retailtransactions only); commercial banks; central banks; taxationauthorities; and non-bank clearing houses and depositories.

[0221] The resources transferred by these entities may be of any type.However, most typically, they will be deposits appropriate for theentity concerned: With respect to public/privaterecord-registries—entitlement deposits (including shares in financial orphysical assets, participation rights in wagers, and so on). Withrespect to credit/debit card companies—normal card company deposits(denominated in national currencies or synthetic currencies (forexample, SDRs)). With respect to commercial banks—normal bank deposits(denominated in national currencies or synthetic currencies (forexample, SDRs)). With respect to central banks exchange settlementaccount (or equivalent) deposits. With respect to taxationauthorities—taxation account deposits. And with respect to non-bankclearing houses and depositories—deposits of financial instruments,precious metals and the like. CONTRACT APP potential counterparties willalso effectively be C/E transfer entities, as will ordering partyguarantors (external to INVENTCO) where they offer credit to productordering parties. Also, some accounts will be trust accounts maintainedon behalf of potential counterparties (and some product orderingparties) involved in applications requiring the periodic payment ofcollateral to independent third parties to serve as an additionalsecurity device.

[0222] Immediately after the completion of its daily—or morefrequent—transaction processing, and their associated settlementfunctions, each C/E transfer entity electronically notifies theapplicable CONTRACT APP of the “opening balances” of all the debit andcredit INVENTCO accounts it maintains (At this stage, the debit accountbalance should be zero and the credit account balance should be greaterthan or equal to zero). Where an INVENTCO stakeholder has an overdraftor line-of-credit with its C/E transfer entity, the credit value of thiswill be reflected in the non-zero balance of its credit account at thistime.

[0223] Upon receipt of the above-described notifications, the applicableCONTRACT APP updates/confirms its stakeholder shadow balances. Thus, atthis point-in-time, all credit and debit shadow account balances shouldbe equivalent to their actual debit and credit account balances.

[0224] Progressively throughout the day (where “day” here is likely tobe different for each C/E transfer entity due to a combination ofdifferences in the time-zone locations of payment entities in relationto the applicable CONTRACT APP, and the likely different accountprocessing cycles of these entities), INVENTCO-stakeholder—authorised 15debits and credits to INVENTCO stakeholder shadow accounts are effectedon a real-time basis—debits to debit accounts and credits to creditaccounts. At all times, the CONTRACT APP ensures that the cumulativedebit balance of each stakeholder's debits account does not exceed the“opening balance” plus the cumulative credit balance of thestakeholder's credit account. Thus, at any time, for every INVENTCOstakeholder, the combination of each stakeholder's debit account andcredit account will represent the “true”, net, time-of-day value of thestakeholder's two actual special-purpose accounts maintained external toINVENTCO.

[0225] Debits and credits to INVENTCO stakeholder accounts are effectedaccording to strict rules and conditions, being different for creditsand debits. Credits can be made to any INVENTCO stakeholder's creditaccount with its nominated C/E transfer entity by any other INVENTCOstakeholder for any reason. Naturally, as INVENTCO stakeholders will notknow the account details of other stakeholders, such credits will beeffected either automatically, according to information and rules knownby the applicable CONTRACT APP, or semi-automatically by way of anINVENTCO stakeholder requesting from VIRPRO, as they need to do so, acredit-account number of the stakeholder to which they wish to transferassets. This account number may only be valid for a nominated period andwould not typically be the specified stakeholder's actual account numberwith its nominated consideration/entitlement transfer entity—it wouldonly be a reference to an INVENTCO file containing this number.

[0226] On the other hand, debits can only be made to an INVENTCOstakeholder's debit account with its nominated C/E transfer entity bythe stakeholder itself, and by other stakeholders explicitly grantedthis right by each stakeholder, subject to these other stakeholdersexercising this right according to the rules and conditions specifiedfor them.

[0227] Where an INVENTCO stakeholder seeks to initiate/authorise debitsto its nominated account(s) on its own, this can only be done throughthe stakeholder satisfactorily completing the identification andsecurity procedures set down by their C/E consideration/entitlementtransfer entity (and reflected in VIRPRO-specified INVENTCOcommunication procedures). The type of procedure set down by allparticipating C/E transfer entities involves (at least) the following:First, the consideration/entitlement transfer entity supplying VIRPROwith a confidential file of account Pin numbers corresponding to each ofits INVENTCO stakeholder debit accounts, and a similarly confidential“black box” which, by initiating any of a number of possible proprietarypassword request-response processes involving any one of its customerspossessing the appropriate device(s), confirms that remote messagesreceived from that customer, and processed by the “black box”, areauthentic. Second, the consideration/entitlement transfer entitysupplying their INVENTCO customers with a programmable smart card (orequivalent device) enabling each customer, remotely—via telephone ordirect computer line, to unambiguously confirm their identity with theirINVENTCO-maintained account, thereby having the capability to authorisedebits to their account within predefined parameters concerning factorssuch as maximum transaction amounts, possible transaction types, accountusage patterns and so on. Third, INVENTCO providing the mechanisms fordirect, confidential, stakeholder communications with their C/E transferentity shadow debit accounts, and the formal updating of these accounts,through non real-time processes, utilizing the unique time-stampedreference numbers created as/when stakeholders authorise access to theiraccount records.

[0228] Where an INVENTCO stakeholder has authorised other INVENTCOstakeholders to initiate debits to (any of) its nominated account(s)according to a standing authority of some type, this can only be donethrough the authorised stakeholder itself satisfactorily completing theidentification and security procedures set down by theauthorisation-granting stakeholder's nominated C/E transfer entity (andreflected in VIRPRO-specified INVENTCO communication procedures). Onceagain, the type of procedure, set down by all participating C/E transferentities in this respect, involves (at least) the following: First, theC/E transfer entity supplying VIRPRO with a confidential file of accountPin numbers corresponding to each of its INVENTCO stakeholder debitaccounts and each other INVENTCO stakeholder which has been authorisedto effect debits (within defined parameters) to these accounts. Second,the C/E transfer entity supplying VIRPRO with a similarly confidentialblack box which, by initiating any of a number of possible proprietarypassword request-response processes involving an entity nominated by anyof its customers possessing the appropriate device(s), confirms thatremote messages received from that authorised entity, and processed bythe black box, are authentic. Third, the C/E transfer entity supplyingtheir INVENTCO customers with a collection of programmable smart cards(or equivalent devices), for distribution to these authorised entities,enabling each authorised entity, remotely—via telephone or directcomputer line—to unambiguously confirm their identity with thecustomer's PAYACC SHADOW account, thereby having the capability toauthorise debits to this account (again, within predefined parametersconcerning factors such as maximum transaction amounts, possibletransaction types, account usage patterns and so on). And four, INVENTCOproviding the mechanisms for direct, confidential, authorisedstakeholder communications with a stakeholder's C/E transfer entityshadow debit account(s).

[0229] At the end of each C/E transfer entity's specified day (or partof a day), the applicable CONTRACT APP transfers (at least) two thingsto the entity: First, if required, a series of figures representing theexchange settlement (or equivalent) accounting entries it has or willcommunicate to the C/E transfer entity's appropriate clearing authority(for each of the applicable consideration/entitlement denomination,currency and national currency types of the payments/receipts involved)where these figures represent the balancing net debit or credit figurecorresponding to the aggregation of all of the entity's INVENTCOcustomer transactions in the prior day. And second, a detailed file ofall customer transactions effected during the day (corresponding, ifrequired, to the above-described net figures). Upon their receipt ofthese transactions and summary figures, the C/E transfer entity thendebits/credits each transaction to the appropriate actual customeraccounts, enabling new “closing” account balances to be calculated(these “closing” balances should be exactly the same as the end-of-daybalances commumicated by the applicable CONTRACT APPS with it's file ofcustomer transactions). In turn, these “closing balances” become the C/Etransfer entity's account “opening balances” for the next day. TheCONTRACT APPS notification process then repeats itself.

[0230] Where applicable, at days-end for the “clearing house” ofclusters of like C/E transfer entities (for example, a national centralbank), CONTRACT APP transfers netted exchange settlement accountingentries to the clearing houses concerned. These entries serve to“balance the individual customer account entries transferred to eachassociated C/E transfer entity individually.

[0231] 8. Industrial Applicability

[0232] The invention has industrial application in the use of electricalcomputing devices and data communications. The apparatus and methodsdescribed allow the management of risk in an automated manner by meansof programming of the computing devices. The types of events associatedwith the risk management apparatus and methodologies includes physicaland technical phenomena, and therefore have value in the field ofeconomic endeavour.

APPENDIX A

[0233] Glossary of Key Terms

[0234] Alpha (X)

[0235] The Ordering party-specified event value corresponding to the Xthfuture product event value contract entitlement payoff (payout)inflection point.

[0236] Application Promoter

[0237] An entity authorised by VIRPRO that specifies and administersdefined rules and regulations underlying a defined CONTRACTAPP—including the specific products offered for trading; categories of,and conditions of involvement, of stakeholders; nature of involvementand dispute resolution procedures of stakeholders.

[0238] Automatic/Manual Deal and no Deal Flags

[0239] Indicators notified by each stakeholder to CONTRACT APPspecifying the manner in which that stakeholder wishes to deal with eachother stakeholder.

[0240] AXSCO

[0241] A communications co-ordination and security system, linked to allstakeholders and component applications.

[0242] Base Pricing Probabilities

[0243] The prices set by sellers for unit entitlement payoffs of acontract at each of its possible future index values denominated in thecontract's formally specified consideration/entitlement, currency andnational currency.

[0244] Beta (X)

[0245] The Ordering party-specified desired entitlement payoff (payout)amount in the desired currency denomination of contract entitlementpayout (payoff) and national currency denomination of contractentitlement payout (payoff) corresponding to the Xth event valueinflection point.

[0246] Bilateral Obligations Netting Indicator

[0247] An indicator that individual ‘rolling’ net present values offuture payment/receipt commitments to/from all pairs of participatingstakeholders are to be netted.

[0248] Bilateral Payments Netting Indicator

[0249] An indicator that individual end-of-day gross payments/receiptsto/from all pairs of participating INVENTCO stakeholders are to benetted.

[0250] Commission Rate

[0251] The minimum required percentage profit margin required by aPotential Counterparty above the “breakeven” bid price for an Orderingparty purchase order.

[0252] Consideration/Entitlement Transfer Entity

[0253] An entity acceptable to VIRPRO and the Application Promoter,satisfying defined minimum standards of financial strength, creditstanding and integrity, able to maintain Consideration/entitlementaccounts on behalf of stakeholders and effect transfers of those assetsas directed.

[0254] CONTRACT APP Stakeholder Types

[0255] Expected stakeholder types are Application Promoter, ProductSponsor, Product Ordering party, Counterparty, Counterparty-Guarantor,Regulator, Consideration/entitlement Transfer Entities and Miscellaneousother parties.

[0256] Contract and Product “absolute loss” Limit

[0257] A value limit specified by a potential counterparty of themaximum absolute loss it is prepared to sustain on a contract/productirrespective of the assessment of the likelihood of any particular levelof possible loss being incurred.

[0258] Contract and Product “expected loss” Limit

[0259] A value limit specified by a potential counterparty of themaximum expected loss it is prepared to sustain on a contract/productbased on the counterparty's assessment of the likelihood of all levelsof possible loss being incurred.

[0260] Contract Authorisation

[0261] A process of verifying that an Ordering Party product purchaseorder contains data appropriate to the product being sought and that theOrdering Party is accurately identified and credential led.

[0262] Contract Collateralisation Indicator

[0263] A descriptor set by the Application Promoter specifying whetherand on what basis, counterparties. may be required to periodicallytransfer assets/monies (collateral) to an independent trust fund toensure they will be able to meet their potential entitlement payoffobligations on the maturity date of a contract.

[0264] Contract Confirmation

[0265] The process of securing the positive agreement of all affectedstakeholders to a purchase order, including acknowledgement by therelevant Consideration/entitlement transfer entity of the Orderingparty's ability to pay the required product consideration and fees,either automatically or through manual approvals.

[0266] Contract Matching

[0267] See Ordering party/Potential counterparty matching process.

[0268] Contractual Obligation

[0269] a. A binding commitment one entity (or group of entities) has toprovide products or services or information to another entity (or groupof entities) in exchange for an agreed quantity of other products,services or information.

[0270] b. A binding commitment all entities have to the network andgeneral management system entity VIRPRO and thus to each other, toaccept constraints on their activities imposed by other authorisedentities on terms specified and agreed to by them as a condition oftheir participation in one or more of the component systems.

[0271] Contract Portfolio Netting

[0272] A term used to describe the process of “setting-off” or“netting”, the future payment entitlement obligations between Orderingparties and Counterparties, either bi-laterally or multi-laterally.

[0273] Currency and National Currency Exchange Rates

[0274] The rates used to convert contract consideration/entitlementcurrency and national currency requirements into the product'sconsideration/entitlement currency and national currency denomination.

[0275] Deal Flag

[0276] An indicator or “flag” notified to CONTRACT APP signifying thatthe stakeholder is satisfied to deal unreservedly with the stakeholderagainst whom the flag has been set.

[0277] Defined Circumstances

[0278] The possible combinations of the categories of product-orderinformation provided by Ordering parties.

[0279] Defined Probability Distributions

[0280] A set of pricing probability parameters specified by an Orderingparty and including at least, a probability distribution typeidentifier, the expected value of the distribution, the standarddeviation of the distribution and a probability distribution adjustmentvalue or function.

[0281] Desired Currency Denomination of Contract Entitlement

[0282] A term indicating the currency in which an Ordering party wishesto receive potential entitlement payments from the sought contract.

[0283] Desired Currency Denomination of Consideration Payment

[0284] A term indicating the currency in which an Ordering party wishesto pay the required consideration for the contract sought.

[0285] Desired National Currency Denomination of Contract Entitlement

[0286] A term indicating the National currency in which an Orderingparty wishes to receive potential entitlement payments from the soughtcontract.

[0287] Desired National Currency Denomination of Consideration Payment

[0288] A term indicating the National currency in which the Orderingparty wishes to pay the required consideration for the contract beingsought.

[0289] Discount Rate

[0290] The rate used to determine the present value of a potentialcounterparty's expected future entitlements.

[0291] Entitlement

[0292] The payout expected by the offering party at maturity asspecified for each outcome in the range of outcomes. The payout can beboth positive and negative in value over the range of outcomes, and canbe in the form of money or other non-money types of goods, services,promises, credits or warrants.

[0293] EV-CE Pricing

[0294] A price discovery mechanism for primary contracts meaning“expected value certainty equivalent pricing” being the calculatedexpected present value or future value of the contract.

[0295] Expected Value

[0296] A function in EV-CE pricing which means the sum of the productsof all possible contract entitlement payoff/payout amounts and theOrdering party's/Counterparty's assessment of the probability ofoccurrence of the future events which would contractually give rise tothese entitlement payoff amounts.

[0297] Expected Value Limits on a Counterparty's Aggregate ProductPortfolio

[0298] Optional value limits specified by a Potential counterparty atany one time, where time can be specified in terms including “equivalentmaturity date”; “same-month maturity date” and “all possible maturitydates” including product expected loss limits and maximum (and possiblyminimum) proportion of the expected total loss of the aggregate of theCounterparty's product portfolio that can be accounted for by theexpected loss on the individual contract/product.

[0299] Gamma(X)

[0300] The Ordering party-specified desired shape of the functionbetween each of the coordinates Alpha(1), Beta(1) and Alpha(2), Beta(2)and so on; such that Gamma can represent all possible mathematicallydefinable shapes.

[0301] I-INVENTCO

[0302] The infrastructure component of INVENTCO.

[0303] INVENTCO

[0304] A collection of one or more (potentially interrelated) systems,where each system is the combination of a telecommunications, computingand other forms of infrastructure, and a variety of markets and supportservices distributed by this infrastructure.

[0305] M-INVENTCO

[0306] A depository of VIRPRO authorised “markets” application software.

[0307] Manual Deal Flag

[0308] An indicator or “flag” notified to CONTRACT APP by a stakeholdersignifying that the stakeholder wishes to manually approve a transactioninvolving the other stakeholder against whom the flag has been set.

[0309] Multilateral Payments Netting Indicator

[0310] An indicator that individual end-of-day gross payments/receiptsto/from all participating stakeholders from/to a specified third partytrustee/clearing entity are to be netted.

[0311] Multilateral Obligations Netting Indicator

[0312] An indicator that individual ‘rolling’ net present values offuture payment/receipt commitments to/from all participatingstakeholders from/to a third party trustee/clearing entity are to benetted.

[0313] Negative Contract Payoffs

[0314] A type of contract in which the contract Ordering party may havea contingent payoff to the contract's Potential counterparty (i.e. thereverse of a normal contract).

[0315] No Deal Flag

[0316] An indicator or “flag” notified to a CONTRACT APP by astakeholder signifying that the stakeholder does not wish to deal in anyway with the other stakeholder against whom the flag has been set.

[0317] Ordering Party Contingent Claims Function

[0318] Specifications of a product payoff or a mathematical function tocalculate an Ordering party's product payoff requirement.

[0319] Portfolio Product “expected loss” limit

[0320] A value limit, specified by a potential Counterparty, of themaximum expected loss the potential Counterparty is prepared to sustainon its product portfolio based on the Counterparty's assessment of thelikelihood of all levels of possible loss being incurred.

[0321] Product Ordering Party

[0322] An entity acceptable to VIRPRO and the Application Promoter,interested in and able to acquire a CONTRACT APP product.

[0323] Product Establishment Date/Time

[0324] The date/time an Application Promoter first offers a definedproduct for trading.

[0325] Product Future Event Value “density” Indicator

[0326] An indicator specifying the number of intermediate points betweenthe minimum and maximum future event product definition values specifiedfor the product by the Application Promoter/Product Sponsor.

[0327] Product Event Value “width” Indicator

[0328] An indicator specifying the range (minimum-maximum) of futureevent values accommodated by the product as set by the ApplicationPromoter/Product Sponsor.

[0329] Product Future Event Value

[0330] A term used to indicate the actual value of a defined product atits date/time of maturity.

[0331] Product Maturity Date/Time

[0332] The date-time at which the Application Promoter is required tomake a determination of the actual event value to enable entitlement andrelated payoffs on successful contracts.

[0333] Product Price Quote Requests

[0334] A type of product purchase order for which the matching processis terminated and the result communicated to the Ordering party, when adesired price bid or range of price bids has been obtained.

[0335] Product Purchase Orders

[0336] Specific product purchase orders for which the Ordering party isseeking a potential Counterparty match, which may be of three types:automatic orders; manual orders and “hide” orders.

[0337] Product Purchase Order Withdrawals

[0338] Ordering party-initiated requests to withdraw from processingpre-submitted but as yet unconfirmed product purchase orders.

[0339] Product potential Counterparty

[0340] An entity acceptable to VIRPRO and the Application Promoter,exceeding a defined minimum standard of financial strength, creditstanding and integrity, offering defined CONTRACT APP products toproduct Ordering parties.

[0341] Product Sponsor

[0342] An entity acceptable to VIRPRO and the Application Promoter,having responsibility for detailed definition of product parametersincluding the continual determination of product values over time.

[0343] Regulator

[0344] An entity acceptable to VIRPRO having local, state, national orinternational jurisdiction over one or more CONTRACT APPS.

[0345] Set of Pricing Probabilities

[0346] The range of probabilities a potential Counterparty applies to aclass of Ordering party order, specified by the value of “definedcircumstances” and applying to every feasible future product eventdefined for that product by an Application Promoter.

[0347] Stakeholder

[0348] An entity that is a registered participant in one or more ofINVENTCO's component parts.

[0349] Value Dates

[0350] The respective dates/times at which matched contractconsideration and entitlements are agreed to be made by the relevantOrdering party/Counterparty to a contract.

[0351] VIRPRO

[0352] The network and general management system component of INVENTCO.

[0353] “X”

[0354] A term indicating the number of contract payoff (payout)inflection points the Ordering party is seeking within the allowablerange of future product event values (including the value rangeextremity points).

APPENDIX B

[0355] Contact Apps

[0356] Overview

[0357] CONTRACT APPS is a term used to refer to certain types of unitsof applications software which can, but do not need to, reside within anINVENTCO system's (M-INVENTCO) depository of “markets” software. Thepurpose of individual CONTRACT APPS is two-fold: First, to effect thetrading/exchange/transfer of risk aversion transactions (and derivativesof these transactions) between participating ordering parties andcounterparties on terms acceptable to the parties involved as well as toothers within INVENTCO registered as having a legitimate interest in thenature, size and composition of these trades/exchanges/transfers. Andsecond, to appropriately manage all matched/confirmed contracts throughto their time of maturity, including their ultimate settlement.

[0358] Individual CONTRACT APPS perform theses tasks according to thespecific rules they embody, defined by their own stakeholders. CONTRACTAPPS effectively reside upon AXSCO and within M-INVENTCO.

[0359] Stakeholder Types

[0360] CONTRACT APPS accommodate eight (and potentially fewer) generictypes of their “own” stakeholders (as distinct from other INVENTCOstakeholders) termed: application promoter, product sponsors, productordering parties, potential product counterparties,counterparty-guarantors, regulators, consideration/entitlement transferentities, and other miscellaneous parties.

[0361] Some details of these stakeholders are as as follows: anapplication promoter is an entity having overall responsibility for thefunctioning of a CONTRACT APP (that responsibility having been grantedby VIRPRO); a product sponsor is an entity which promotes andadministers the rules of trading, and subsequent management, of definedcontingent claims contracting product(s) selected for inclusion in aCONTRACT APP by its application promoter; a product ordering party is anentity seeking to acquire a CONTRACT APP product from a potentialproduct counterparty (where a product ordering party can also be aproduct counterparty); a potential product counterparty is an entitypotentially prepared to satisfy the CONTRACT APP product needs of aproduct ordering party (where a potential product counterparty can alsobe a product ordering party); a counterparty-guarantor is an entityguaranteeing a product counterparty's ability to settle any/all of itspotential entitlement transfer obligations to a product ordering partyto which it has become a counterparty as a result of a CONTRACT APPeffected “match”; regulators are entities overseeing the on-goingperformance of all other stakeholders involved in a CONTRACT APP,especially counterparty-guarantors; consideration/entitlement transferentities are entities with which all other CONTRACT APP stakeholdersmaintain “accounts” to transfer required considerations/entitlementsto/from all each other; and miscellaneous parties are all other entitieshaving a defined stake in the functioning of a CONTRACT APP.

[0362] Miscellaneous parties include: independent entities contracted byapplication promoters or product sponsors to formally determine the“value” of products on their date-of-maturity; multilateral obligationsand payment netting trustee/clearing entity organisations; independent(non-regulator) taxation and other governmental authorities; electronic“gateway”providers (external to INVENTCO); and host system organizations(in the case of CONTRACT APPS within INVENTCO systems linked to a commonhost system). CONTRACT APPS accommodate any number of their ownstakeholders of each of the above-defined generic types.

[0363] Product Types

[0364] CONTRACT APPS can support risk aversion contract “product types”with any combination of values of multiple attributes, including: thefundamental nature/purpose of the product; the establishment/maturitydate/time of the product; the consideration/entitlement denominationtype, currency (if applicable), and national currency (if applicable)consideration/entitlement identifiers associated with the product; the“width” and “density” identifiers of possible future event values of theproduct; and miscellaneous other product descriptors.

[0365] The “fundamental nature/purpose of the product” attribute mayincorporate identifiers including: a conditional entitlement-payoffdimensioins identifier; a market identifier; a sub-market identifier;and a market-type identifier. The “conditional entitlement-payoffdimensions identifier” specifies the number of dimensions to an orderingparty's sought-after conditional entitlement-payoffs. The marketidentifier specifies whether the product relates to an “actual” or“perceived” phenomenon (or phenomena), the number of such phenomena (ifapplicable), and the applicable phenomenon category (for example,industrial, scientific, financial market hedging, and so on). Thesub-market identifier provides a more specific description of theproduct concerned. The market-type identifier specifies the applicablefuture period date/time (where this can be anything—for example, “at adefined contract maturity date/time”, “at a specified time on or beforecontract maturity date/time”, and so on), and type-of-future eventinvolved (where, again, this can be anything—for example, as anindicator of some relative value of a phenomenon (spot value, averagevalue and so on), or as an indicator of the “rate-of-change” of somevalue of a phenomenon.

[0366] The “establishment and maturity date/time of the product”attribute specifies, respectively, the date/time an application promoterfirst offered a product for trading, and the date/time at which thedefined product matures (that is, the date/time at which the productsponsor is required to make a determination of the actual event value atthat date/time so enabling contract entitlement transfers to beeffected).

[0367] The “consideration/entitlement denomination type, currency (ifapplicable), and national currency (if applicable)consideration/entitlement identifiers associated with the product”attribute specify: the type of consideration/entitlement involved (wherethis can include rights and entitlements, physical assets. and “money”of all possible types); in the case of a “money”consideration/entitlement type, the currency of theconsideration/entitlement (where such currency types can include:public/private record-depository deposits, commercial credit cardcompany deposits, commercial bank deposits, central bank deposits,taxation authority deposits, and deposits in non-bank clearing housesand depositories, and the like); and, again, in the case of a “money”consideration/entitlement type, the national currency of theconsideration/entitlement identifier (where such national currency typescan be in any national currency, or form of synthetic currency).

[0368] The “width and density identifiers of possible future eventvalues of the product” attribute specifies, respectively: the minimumand maximum values of the allowable range of future event valuesaccommodated by a product; and the number of intermediate points betweenthe defined minimum and maximum future event values accommodated by theproduct.

[0369] The “miscellaneous other product descriptors” attribute specifiessuch things as: the degree of stakeholder access granted the product bythe application promoter in question; the forms of trading-servicesgranted the product by the application promoter in question (where thisproduct attribute specifies the accessibility of the product to a rangeof feasible “stakeholder services” with respect to such things ascontract portfolio netting, contract collateralisation, considerationcredit provision. ordering party ability to specify negative contractentitlements, and availability of secondary/derivative market producttrading) ; and the degrees of trading, clearing and settlement“transparency” granted the product by the application promoter inquestion.

[0370] Transaction Types

[0371] A range of primary, secondary, derivative-primary, andderivative-secondary risk aversion contract transactions areaccommodated by CONTRACT APPS.

[0372] The range of “primary” (and derivative-primary (options, forexample)) risk aversion contract transaction-types (handled principallyby Processes 2 and 4—described in Appendix C) include: ordering partyproduct orders (and option orders) for which the ordering party isseeking a counterparty “match”, ordering-party price quote (and optionsprice quote) requests; and ordering-party withdrawals of existingproduct orders (and withdrawal of options on product orders). Orderingparty product orders consist of: automatic orders and manual orders.Automatic orders consist of: normal-automatic orders (being orders theordering party is prepared to have matched automatically, subject onlyto the constraints defined in the ordering party's order, in addition towhatever “match” constraints other CONTRACT APP stakeholders haveprespecified); and anonymous-automatic orders (being orders the orderingparty is prepared to have matched automatically, subject to theconstraints defined in the ordering party's order, in addition towhatever “match” constraints other CONTRACT APP stakeholders haveprespecified, provided that no CONTRACT APP stakeholder has sought tomanually authorise the transaction and, through so doing, being able topotentially identify the ordering party). Manual orders consist ofnormal-manual orders (being orders the ordering party wishes to manuallyauthorise before they are finalised—that is, after a counterparty“match” has been effected but before the contract has been“confirmed”—subject only to the constraints defined in the orderingparty's order, in addition to whatever “match” constraints otherCONTRACT APP stakeholders have prespecified); and anonymous-manualorders (being orders the ordering party wishes to manually authorisebefore they are finalised—that is, after a counterparty “match” has beeneffected but before the contract has been “confirmed'—subject to theconstraints defined in the ordering party's order, in addition towhatever “match” constraints other CONTRACT APP stakeholders haveprespecified, provided that no CONTRACT APP stakeholder has also soughtto manually authorise the transaction and, through so doing, potentiallyidentify the ordering party).

[0373] The range of “secondary” (and derivative-secondary (options, forexample) risk aversion contract transaction-types (handled principallyby Processes 3 and 5—described in Appendix B) include: acquiring partyproduct orders (and option orders) for which the acquiring party isseeking to “acquire” the position of a specified “riskcounterparty”stakeholder in an existing contract; acquiring-partyproduct price indications (and option price indications); andacquiring-party withdrawals of existing product orders (and optionwithdrawals).

[0374] Acquiring party product orders for which the acquiring party isseeking to “acquire” the position of a specified “risk counterparty”stakeholder in an existing contract, consist of automatic orders andmanual orders.

[0375] Automatic orders consist of: normal-automatic orders (beingorders the acquiring party is prepared to have matched automatically,subject only to the constraints defined in the acquiring party's order,in addition to whatever “match” constraints other CONTRACT APPstakeholders have prespecified); and anonymous-automatic orders (beingorders the acquiring party is prepared to have matched automatically,subject to the constraints defined in the acquiring party's order, inaddition to whatever “match” constraints other CONTRACT APP stakeholdershave prespecified, provided that no CONTRACT APP stakeholder has soughtto manually authorise the transaction and, through so doing, being ableto potentially identify the acquiring party).

[0376] Manual orders consist of normal-manual orders (being orders theacquiring party wishes to manually authorise before they arefinalised—that is, after a “match” has been effected but before thecontract “sale” is “confirmed”—subject only to the constraints definedin the acquiring party's order, in addition to whatever “match”constraints other CONTRACT APP stakeholders have prespecified); andanonymous-manual orders (being orders the acquiring party wishes tomanually authorise before they are finalised—that is, after a “match”has been effected but before the contract “sale” is “confirmed”—subjectto the constraints defined in the acquiring party's order, in additionto whatever “match” constraints other CONTRACT APP stakeholders haveprespecified, provided that no CONTRACT APP stakeholder has also soughtto manually authorise the transaction and, through so doing, potentiallyidentify the acquiring party).

[0377] Primary Product Pricing Process Types

[0378] CONTRACT APPS enable potential counterparties to automaticallyestablish “bids” on any defined (primary and derivative-primary) productorder according to either an “expected value/utility-certaintyequivalent” (EV/U-CE) pricing regime, or any othermathematically-definable pricing regime.

[0379] In the case of an “expected value-certainty equivalent” (EV-CE)pricing regime, each potential counterparty specifies, amongst otherthings: an indicator of certain defined attributes of an as-yet-unknownproduct order; a base commission rate; a base discount rate; (ifapplicable) a set of base consideration/entitlement denomination,currency, and national currency exchange rates; base unit productprices; and desired adjustments to the preceding base-bid-pricedeterminants dependent on any specific order (submitted by a specifiedordering party).

[0380] The above-described indicator of certain defined attributes of anas-yet-unknown product order (termed, defined circumstances) may reflectany combination of the multiple characteristics of an order(irrespective of the ordering party concerned), including: the multipleattributes of the contingent claims function sought; the orderingparty's interest or otherwise in being granted credit by a counterparty;the ordering party's interest or otherwise in participating in thepossible netting and collateralisation features of the APP; and themaximum (and possibly minimum) consideration amount the ordering partyis prepared to pay for their defined product. The above-described basecommission rate specifies the minimum required percentage profit marginrequired by the counterparty above their breakeven consideration bidprice for a product order.

[0381] The above-described base discount rate determines the presentvalue of the counterparty's expected future entitlement associated witha contract (net of the ordering party's consideration, and makingallowance for the future income stream this consideration is expected togenerate). The above-described set of base consideration/entitlementdenomination, currency and national currency exchange rates are used,where applicable, to convert an ordering party's contract requirementsinto the base consideration/entitlement denomination, currency andnational currency of the product so enabling the contract matchingprocess to make like comparisons of counterparty bids for productorders.

[0382] The above-described base unit product prices are prices set bypotential counterparties for unit entitlement-payoffs of a contract ateach of its possible future values, denominated in the contract'sformally specified consideration/entitlement type and, if applicable,currency type and national currency type (where these unit prices can bespecified as directly input figures for every feasible future productevent (the sum of which may or may not add to 1), or as parameters ofdefined mathematical functions). The above-described desired adjustmentsto the preceding base-bid-price determinants dependent on the specificordering party submitting a specific order can include: a commissionrate adjustment; a discount rate adjustment; aconsideration/denomination exchange rate adjustment; a currency exchangerate adjustment; and a national currency exchange rate adjustment.

[0383] In the case of an “expected utility-certainty equivalent” (EU-CE)pricing regime, each potential counterparty specifies all of theabove-described parameters applicable to a EV-CE pricing regime as wellas “utility bench-mark” figures for all possible consideration andentitlement “payment amounts” which could, conceivably, be associatedwith a product/contract.

[0384] Primary Product Matching Process Types

[0385] CONTRACT APPS may similarly accommodate any of a number ofpossible (primary and derivative-primary) order matching processes wherethese processes can be of multiple types, including sequential processesand simultaneous processes.

[0386] Sequential order matching processes can be characterisedaccording to the “sequence determining” and “matching” rules theyembody, where “sequence” rules may be of various types:“last-in-first-out (LIFO)”, “first-in-first-out” (FIFO)”, pricedpriority, and so on; and matching rules may also be of various types—forexample, a specific matching process could seek, for each productordering party, a counterparty (or counterparties) offering a productprice at or below the maximum price the ordering party is prepared topay (where the determined contract price could be either the lowestprice offered by a potential counterparty, the mid-point between the anordering party's specified “maximum consideration amount” and the lowestprice offered by a potential counterparty, and so on); or seek for eachpotential product counterparty an ordering party prepared to pay themaximum price above a price at which the counterparty is prepared todeal (here, the determined contract price could be either: the orderingparty's “maximum consideration amount” price, the mid point between theminimum price the counterparty is prepared to receive and the orderingparty's “maximum consideration amount” price, and so on).

[0387] Simultaneous order matching processes are those seeking some typeof optimum solution according to pre-defined objectives. For example:“maximise the number of ordering party-counterparty matches”; “maximizethe aggregate consideration and/or entitlement value of orderingparty-counterparty matches”; or “minimize the value of a functionspecifying the sum of the differences (possibly weighted according totheir perceived importance) between the actual and desired values ofmatch attributes of ordering parties and counterparties”.

[0388] Both of the above-described sequential and simultaneous matchingprocesses can also accommodate conditional contract matching rules; andpre and post tax price optimisation mechanisms.

[0389] Application Types

[0390] CONTRACT APPS may be: “in-house” APPS or “public” APPS; “singlepotential counterparty” APPS or “multiple potential counterparty” APPS;APPS with differing degrees and forms of “regulator” oversight of otherapplication stakeholders; and APPS with differing degrees and forms of“counterparty-guarantor” oversight of product potential counterparties.

[0391] CONTRACT APPS support consideration “payment” value dates being“immediate” (meaning exactly the time at which a contract match isconfirmed); or deferred until a defined time in the future, measured interms of seconds, minutes, hours, or days. Similarly, CONTRACT APPSsupport entitlement “payment” value dates being “immediate” (meaningexactly the time at which the applicable application promoter formallynotifies other CONTRACT APP stakeholders of the “result” of a maturingcontract); or deferred until a defined time after the “result” of amaturing contract is known.

[0392] CONTRACT APPS allow contracts to be modified and liquidated aftertheir creation. Contracts can be modified through: direct negotiation bythe relevant “risk counterparties” to a particular contract; or thepurchase/sale of “derivative” secondary risk aversion contracttransactions (See Process 5 description in Appendix C). Contracts can besimilarly liquidated after their creation through sale of the contract(within or outside INVENTCO); and through direct negotiation between theinitial ordering party and counterparties to the contract. They can alsobe effectively liquidated through the ordering party/counterpartyacquiring a mirror image of the contract to which they are a party(within or outside of INVENTCO).

[0393] Post Order Process Types

[0394] CONTRACT APPS undertake various generic types of“post-order-process” management functions for all the above-describedgeneric types of “transactions”, including: a function which maintains aformal record of contractual commitments entered into by all CONTRACTAPP stakeholders with one another, and with VIRPRO-authorised entitiesexternal to either the applicable CONTRACT APP or INVENTCO overall; afunction which effects the independent valuation of consideration andentitlement obligations between CONTRACT APP stakeholders, and betweenCONTRACT APP stakeholders and VIRPRO-authorised entities external toeach applicable CONTRACT APP; a function which determines and effects“collateralisation” consideration/entitlement transfers between CONTRACTAPP stakeholders, and between CONTRACT APP stakeholders andVIRPRO-authorised entities external to each applicable CONTRACT APP,based on above-described valuations of consideration and entitlementobligations associated with CONTRACT APP transactions; a function whichdetermines and effects, as required, the bi-lateral netting ofaccumulated “consideration/entitlement” obligations “between CONTRACTAPP stakeholders, and between CONTRACT APP stakeholders andVIRPRO-authorised entities external to each applicable CONTRACT APP; afunction which determines and effects, as required, the multi-lateralnetting of accumulated “consideration/entitlement” obligations” betweenCONTRACT APP stakeholders, and between CONTRACT APP stakeholders andVIRPRO-authorised entities external to each applicable CONTRACT APP(involving a nominated third-party “clearing house” entity); a functionwhich manages the processing, accounting, reporting, and entitlement“payment” tasks associated with maturing contracts; a function whichdetermines system usage and access fees payable to/from all CONTRACT APP(and other INVENTCO) stakeholders, and to/from VIRPRO-authorisedentities external to INVENTCO; a function which determines and effects,as required, “bi-laterally netted” consideration/entitlement transfersfrom/to CONTRACT APP stakeholders themselves, and from/to CONTRACT APPstakeholders and VIRPRO-authorised entities external to each applicableCONTRACT APP; a function which determines and effects, as required,“multi-laterally netted” consideration/entitlement transfers from/toCONTRACT APP stakeholders themselves, and from/to CONTRACT APPstakeholders and VIRPRO-authorised entities external to each applicableCONTRACT APP (involving a nominated third-party “clearing house”entity); and a function which compiles and distributes CONTRACT APP (andother INVENTCO) stakeholder customised information.

[0395] Supplementary Process Types

[0396] CONTRACT APPS undertake various other types of support processes,including: enabling stakeholders to transfer consideration, entitlementand other “payment” obligations to and from one another, independentlyof transfers initiated by CONTRACT APP transactions (See Process 7description in Appendix C); providing CONTRACT APP (and other INVENTCO)stakeholders with shared access to specialist systems to assist them todecide how best to interface with the multiple aspects of INVENTCO (SeeProcess 8 description in Appendix C); and providing CONTRACT APP (andother INVENTCO) stakeholders with access to a range ofINVENTCO-facilitated “value added services” (See Process 9 descriptionin Appendix C).

[0397] Order Matching Constraint Types

[0398] For their operation, CONTRACT APPS require all stakeholders to aspecific APP to specify, amongst other things, which other stakeholdersthey do and do not want to have interactions with, and the conditionsunder which they wish to manually authorise some aspect of a transactioninvolving any other CONTRACT APP stakeholder over which they havecontrol authority of some form.

[0399] In specifying which other stakeholders they do and do not want tohave interactions with, CONTRACT APP stakeholders have various options.Application promoters can specify acceptable product sponsors, products,ordering parties and potential counterparties within theirapplication—individually and by type. Similarly, product sponsors canspecify acceptable application promoters, products, ordering parties,potential counterparties and counterparty-guarantors within theirapplication—individually and by type.

[0400] Product counterparties and ordering parties (collectively) canspecify: ordering parties/potential counterparties they do and do notwant to deal with—individually and by type; the extent of theirpreparedness to be involved in contract netting and collateralisationarrangements provided for by their application promoter; applicationpromoters, product sponsors, products, and consideration/entitlementtransfer entities they do and do not want to deal with—individually andby type; ordering parties/potential counterparties they prefer to dealwith, and those with which they wish to deal exclusively; the degree oftrading transparency they require; and their wish or otherwise tomanually authorise order matches before they are confirmed.

[0401] Potential counterparties can specify which ordering parties, orclasses of ordering parties, they are prepared to offer credit to (andunder what terms), and ones they are prepared to allow “orderingparty-guarantors” to offer credit to and under what terms. Similarly,product ordering parties (uniquely) can specify: counterparty-guarantorswith which they do and do not want to deal (individually and by type);counterparties with which they wish to deal exclusively orpreferentially to obtain a particular form of counterparty-credit; andpotential “ordering party-guarantors” (external to INVENTCO) with whichthey do and do not want to deal.

[0402] Counterparty-guarantors can specify which potentialcounterparties have their authority to operate and which applicationpromoters, product sponsors and ordering parties they are prepared,indirectly, to have relationships with. Similarly, regulators canspecify which counterparty-guarantors, potential counterparties,ordering parties, application promoters, product sponsors and productshave their authority to operate. Finally, consideration/entitlementtransfer entities can monitor and maintain up-to-date rules with respectto ordering parties, counterparties, application promoters, productsponsors, counterparty-guarantors, and regulators they are and are notprepared to deal with—individually and by type.

[0403] Ordering Party Requirements

[0404] For their operation, CONTRACT APPS require primary productordering party stakeholders to a CONTRACT APP, in registering an orderfor a product of their choice, to specify: the above-described “producttype” and “other stakeholder involvement” information; multipleattributes of the specific order they are seeking; their interest orotherwise in being granted credit by potential counterparties for theircontract consideration amount, or in availing themselves of the possiblenetting and collateralisation features of the APP concerned; the maximum(and possibly minimum) consideration “price” they are prepared to payfor their defined product; and various other dimensions of their needs,where these include: the name/title by which they wish to be identifiedby other APP stakeholders; the time at which they wish their order to besubmitted; the period of time after an order has been submitted thatthey wish the order to be retained before it is automatically withdrawn;whether or not they are prepared to accept partial matches of theirorder; the degree of market transparency they wish to be exposed to;whether or not they wish wish to have the option of trading a matchedcontract on an authorised INVENTCO secondary market (See Process 5description in Appendix C); whether or not they wish to manuallyconsider/authorise potential counterparty quotes on an order; in thecase where potential counterparty quotes are required to be manuallyconsidered/authorised, the maximum time after potential counterpartyquote details are provided to the ordering party that the ordering partywishes to consider the quote(s); and the consideration/entitlementtransfer entity accounts from which/to which they wish to have relevant“payments” made/received.

[0405] The above-mentioned multiple attributes of a specific primaryorder an ordering party is seeking include: their wish or otherwise todirectly input the entitlement “coordinates” of their desired contingentclaim order; their wish or otherwise to mathematically specify anentitlement function reflecting their desired product order, where suchfunctions can be single or multidimensional (indicating a contingentcontract entitlement conditional on two or more phenomena); the“consideration/entitlement unit”, “currency” (if applicable), and“national currency” (if applicable) in which they wish to“pay”/“receive” their contract consideration/entitlement. Where anordering party wishes to mathematically specify their desired primaryproduct order as a single-dimensional entitlement function: the inputterm “X” can indicate the number of contract entitlement “inflectionpoints” the ordering party is seeking within the allowable range offuture product event values (including the value range extremitypoints); the input term “Alpha (X)” can indicate the orderingparty-specified event value corresponding to the Xth future productevent value contract entitlement inflection point; the input term “Beta(X)” can indicate the ordering party-specified desired entitlementamount (in the desired “consideration/entitlement form”, “currency” and“national currency” entitlement denomination) corresponding to the Xthevent value inflection point; and the input term “Gamma (X-1)” canindicate the ordering party-specified desired shape of the functionbetween each of the co-ordinates: [Alpha (1), Beta (1)] and [Alpha (2),Beta (2)], [Alpha (2), Beta (2)] and [Alpha (3), Beta (3)], and so on(as applicable), where Gamma can represent all possible, mathematicallydefinable, shapes.

[0406] Potential Counterparty Requirements

[0407] For their operation, CONTRACT APPS also require primary product“potential counterparty” stakeholders to a CONTRACT APP to definevarious parameters on the basis of which they can automatically priceorders, including parameters with which they wish to establish a“consideration bid” on a defined product order; possible individualcontract and product constraints they require to be satisfied if theywere to become a counterparty to a defined product ordering party order;and possible expected-value product-portfolio constraints they requireto be satisfied if they were to become a counterparty to a definedproduct ordering party order.

[0408] In defining parameters with which they wish to establish a“consideration bid” on a defined product order under a “EV-CE” pricingregime (described above), each potential counterparty is required tospecify, amongst other things: an indicator of the appropriate “definedcircumstances” of all possible product orders; a base “commission rate”;a base “discount rate”; (if applicable), a set of base“consideration/entitlement denomination”, “currency” and “nationalcurrency” exchange rates; base “unit product prices”; and desiredadjustments to the base commission rate, discount rate, exchange rates,and unit product prices on specific product orders according to thedetermined-value of the “defined circumstances” indicator (based on aspecific product order).

[0409] Possible individual contract and product constraints thepotential counterparty requires to be satisfied if they were to become acounterparty to a defined product ordering party order, include: anabsolute loss limit constraint (this constraint being specified as asingle-figure constraint and/or as a function constraint); an expectedloss limit constraint (this constraint defining the maximum “expected”aggregate loss the potential counterparty is prepared to incur on acontract/product, taking into account their assessment of the likelihoodof all feasible future product values occurring); and a constraint onthe maximum proportion of the expected total loss of the aggregate ofthe potential counterparty's contracts/products that can be accountedfor by the expected loss of the defined individual contract/product.Similarly, possible expected-value product-portfolio constraints thepotential counterparty requires to be satisfied if they were to become acounterparty to a defined product ordering party order include themaximum (and possibly minimum) proportion of the expected total loss ofthe aggregate of the potential counterparty's product portfolio that canbe acccounted for by the expected loss of an individualcontract/product.

[0410] Communications

[0411] CONTRACT APP stakeholders communicate with their applicable APPvia AXSCO. Individual “stakeholder-to/from-AXSCO” communications can beby way of any/all of the following: voice communications with anAXSCO-linked “live operator” or “recorded messaging” system;touch-telephone communication with AXSCO directly; orcomputer-to-computer link with AXSCO (via a dedicated or dial-upcommunications line). With all three forms of communication, CONTRACTAPP stakeholders may be required to utilize specified computer hardwareand/or software mechanisms in their communications with AXSCO (including“payments” authorisation “black box” devices referred to in Appendix H).

[0412] Component Processes

[0413] In their manifestation as telecommunications/computer softwareresiding on telecommunications/computer hardware, individual CONTRACTAPPS consist of a cluster of processes (detailed in Appendix C),utilizing a number of data files, residing on one or more processingunits. A cluster of nine (and potentially more or fewer) specificprocesses and their related data files reside within a CONTRACT APP: aprocess handling file administration and updating tasks supporting allother processes (termed Process 1); a process handling the receipt andprocessing of “primary” risk management contract transactions (termedProcess 2); a process handling the receipt and processing of “secondary”risk management contract transactions (termed Process 3); a processhandling the receipt and processing of “derivative-primary” riskmanagement contract transactions (termed Process 4); a process handlingthe receipt and processing of “derivative-secondary” risk managementcontract transactions (termed Process 5); a process handling the “backoffice” management of all four types of risk management contracttransactions (termed Process 6); a process handling non-transactionrelated consideration, entitlement, and other “payment” obligationtransfers between stakeholders (termed Process 7); a process handlingCONTRACT APP (and other INVENTCO) stakeholder access to specialistsystems to assist these stakeholders decide how best to interface withthe multiple aspects of INVENTCO (termed Process 8); and a processhandling CONTRACT APP (and other INVENTCO) stakeholder access to a rangeof INVENTCO-facilitated “value added services” (termed Process 9). Theseprocesses may function concurrently.

APPENDIX C

[0414] Description of Contract App Process

[0415] Process 1

[0416] Process 1 handles file administration and updating taskssupporting all other processes (FIG. 18). The PRODUCT, PRODUCT TRANS,DEAL LIST and DEAL LIST TRANS files referred to in FIG. 18 areapplicable, individually or collectively, to primary, secondary,derivative-primary, and derivative-secondary contract orders. The SELPRICE, SEL PRICE TRANS, SEL LIMIT and SEL LIMIT TRANS files areapplicable only to primary and derivative-primary contract orders. TheTRADE PRICE, TRADE PRICE TRANS, TRADE LIMIT and TRADE LIMIT TRANS filesare applicable only to secondary and derivative-secondary contractorders.

[0417] The file administration and updating tasks handled by Process 1comprise: dealing with general data-file information received fromCONTRACT APP stakeholders; dealing with general data-file and orderprocessing information received from relevant other INVENTCOstakeholders, particularity VIRPRO and AXSCO; dealing with tradingsupport information received directly from CONTRACT APP stakeholders;dealing with potential counterparty primary, and derivative primary,product order “consideration bid” parameters and order-matchconstraints; dealing with existing-contract offering party secondary,and derivative secondary, order match conditions; and dealing withmiscellaneous information from entities external to INVENTCO.

[0418] Existing and prospective stakeholders are required to supplytheir applicable CONTRACT APP with specified identification and otherinformation, and to continually maintain the integrity of thisinformation. For each stakeholder, this information includes: applicablename(s), addresses, contact numbers, and references; their desiredsystem access medium; their consideration/entitlement transfer entityaccount details; and, if applicable, their required schedule of fees andcharges payable by other INVENTCO stakeholders. This information ismaintained in the data file ADMIN, updated information being received byway of the transaction file ADMIN TRANS.

[0419] VIRPRO is required to supply the applicable CONTRACT APP withvarious forms of general data-file information including: identificationdata relating to the application promoter for (each) CONTRACT APP;details of the permitted types of system access mediums; andconsideration/entitlement denominations available in each application.Again, this information is maintained in the data file ADMIN, updatedinformation being received by way of the transaction file ADMIN TRANS.

[0420] VIRPRO is similarly required to supply the applicable CONTRACTAPP with various forms of general data-file information including:information on all data received by and sent from the various parts ofINVENTCO to one another and to entities external to INVENTCO; andstatistical information of various types, including data trafficvolumes, data file location information and so on This information iscontinuously collected by AXSCO and maintained in the data file HISTORY.

[0421] Trading support information received directly from CONTRACT APPstakeholders comprises stakeholder relationship information of a generalnature, and specific information from individual stakeholders (detailedin Appendix B).

[0422] Stakeholder relationship information of a general naturecomprises “transaction communication parameters” and automatic/manualdeal and no deal flags”. Transaction communication parameters areparameters set by all (registered) CONTRACT APP stakeholders definingthe bounds within which they wish, for security reasons, all of theircommunications within INVENTCO to fall. Automatic/manual deal and nodeal flags are “flags” set, as required, by all (registered) CONTRACTAPP stakeholders indicating their requirements with respect to dealingwith other CONTRACT APP stakeholders. This information is maintained inthe data file DEAL LIST, updated information being received by way ofthe transaction file DEAL LIST TRANS.

[0423] Specific information from individual stakeholders differsaccording to the category of stakeholder involved.

[0424] Application promoters provide, amongst other things: informationfor the data file, PRODUCT (updated transactions being received from thefile, PRODUCT TRANS), and further information for the data file ADMIN(updated transactions being received from the file, ADMIN TRANS).Information for the data file, PRODUCT includes details of the specificproducts application promoters offer for trading/exchange/transfer.Information for the data file, ADMIN includes: the order pricing andmatching process upon which the application is based; theconsideration/entitlement “value date” regime upon which theirapplication is based; the categories of other stakeholders allowed toparticipate in the application and the conditions under which they cando this; the specific rules of engagement of counterparty-guarantors bypotential counterparties; the availability and, in turn, the terms andconditions for CONTRACT APP stakeholder utilization of “considerationcredit”, “collateralisation”, and “netting” features of the application(embodied in the various post-order-processing management routines); anddetails of the consideration/entitlement transfer entities involved inthe application and relevant security information concerning accountaccess.

[0425] Product sponsors provide full details of the product(s) they aresponsoring; product ordering parties and potential counterparties(collectively) indicate, with respect to each other, the parties theyeither prefer to deal with or wish to deal with exclusively. Potentialcounterparties (exclusively) provide a variety of specific information,including: details of the Application promoter, Product sponsor, andCounterparty-guarantor rules under which they have chosen to operate;data recording the lines of credit (if any) offered to ordering partiesand the general and specific terms and conditions of these credit lines(applicable to ordering parties individually and/or to defined classesof ordering parties); parameters with which a potential counterpartywishes to determine its consideration “bids” on orders.Counterparty-guarantors provide details of the potential counterparties(if any) they have agreed to guarantee and the nature of suchguarantees. Regulators provide details of: all entities having a stakein the application and their relationships to one another (for example,which counterparty-guarantors cover which counterparties, whichpotential counterparties offer which products, and so on); specificregulations developed for the regime; and parameters defining thetaxation treatment of all types of orders and related transactions.Consideration/entitlement transfer entities provide “set-up” andon-going account access and balance-updating services. All of theabove-described information is maintained in the data file, ADMIN,updated information being received by way of the transaction file ADMINTRANS.

[0426] In dealing with potential counterparty primary product order“consideration bid” parameters and order-match constraints, potentialproduct order counterparties are required, amongst other things, to:define various parameters with which they wish to establish a“consideration bid” on a defined product order; and define parameterswith which the potential counterparty wishes to determine adjustments tothe “base-price” bids on product orders according to thespecific-ordering party involved (this information is maintained in thedata file SEL PRICE; updated information is received by way of thetransaction files SEL PRICE TRANS); define possible individual contractand product constraints the potential counterparty requires to besatisfied if they are to become a counterparty to a defined productordering party order; and define possible expected-valueproduct-portfolio constraints the potential counterparty requires to besatisfied if they are to become a counterparty to a defined productordering party order (these latter two categories of information aremaintained in the data files SEL LIMIT and BUY LIMIT; updatedinformation being received by way of the transaction file SEL LIMITTRANS) (See Appendix B for further details).

[0427] In dealing with existing-contract offering party secondary ordermatch conditions, offering parties are required, amongst other things,to specify: the Order IDs of the contracts in which the entity concernedwishes to “sell” its position as a contract stakeholder, and, for eachsuch contract, the pricing and other parameters it requires to besatisfied before a contract position “sale” is effected This informationis maintained in the data file TRADE PRICE; updated information isreceived by way of the transaction file TRADE PRICE TRANS.

[0428] In dealing with potential counterparty derivative-primary productorder “consideration bid” parameters and order-match constraints,potential product order counterparties are required to provideessentially the same information described above in relation to primaryproduct orders. However, in addition, information directly applicable tothe relevant type of derivative-primary transaction concerned (say, anoption to establish a primary product order at a later date) is alsorequired.

[0429] In dealing with existing-contract-offering partyderivative-secondary order match conditions, offering parties arerequired to provide essentially the same information described above inrelation to secondary product orders. However, in addition, informationdirectly applicable to the relevant type of derivative-secondarytransaction concerned (say, an option to sell a position in a primaryproduct order at a later date) is also required.

[0430] In dealing with miscellaneous information from entities externalto INVENTCO, this information can be of any type and may, potentially,be used by any part of INVENTCO; the information is maintained in thedata-file ADMIN with updated information being received by way of thetransaction file ADMIN TRANS

[0431] Process 2

[0432] Process 2 handles the receipt and processing of “primary” riskmanagement contract transactions (this term being defined in AppendixD), such transactions being of multiple types (detailed in Appendix B).Various sub-processes of Process 2 handle the receipt and processing ofall possible types of these transactions, including product orderprocessing, price quote requests, and withdrawals of existing productorders.

[0433] Primary “product orders” constitute the core “primary” riskmanagement contract transaction type (FIG. 19 provides a summary flowchart, and the document text provides a detailed flow chart anddescription of the processing of this transaction type).

[0434] Primary product orders incorporate the following key items ofinformation: ordering party identification information; CONTRACT APPapplication and product identification information; “other stakeholderinvolvement” information; the ordering party's desired form of productspecification (directly input as entitlement coordinates or asmathematical function(s)); when the order specification is by way of asingle-dimensional mathematical function, the parameters of such afunction (which can include: the term “X”, the term “Alpha (X)”, theterm “Beta (X)”, the term “Gamma (X-1)”; the contract consideration andentitlement “denomination type”, “currency (if applicable)” and“national currency (if applicable)”; the ordering party's interest orotherwise in being granted credit by potential counterparties for theyet-to-be-determined contract consideration amount; the ordering party'sinterest or otherwise in availing themselves of the possible netting andcollateralisation features of the APP concerned; the consideration“price” range within which the ordering party is prepared to “pay” fortheir defined product; miscellaneous other dimensions of the orderingparty's needs, and the consideration/entitlement transfer entityaccounts from which/to which they wish to have relevant “payments”made/received). Upon its receipt, all of this information is writtento—and subsequently processed from—the file PORD NEW.

[0435] Three sub-processes are involved in processing primary productorders—order authorisation, order matching, and matched orderconfirmation. In the case of the anticipated most typical form of order,termed a “normal-automatic” primary product order these sub-processesfunction as follows:

[0436] The primary product order authorisation sub-process verifies thatall orders contain data appropriate to the product being sought and thateach ordering party is accurately identified and credentialled (thissub-process draws principally on the data-file, PPRODUCT).

[0437] The primary product order matching sub-process locates the bestpossible counterparty(ies) for the ordering party's transactionaccording to the application promoter-specified “matching rules”embodied in the APP; it does this utilizing three componentsub-processes, termed: short-listing of potential-counterparties,individual potential-counterparty “pricing” calculations, andcounterparty selection.

[0438] The “short-listing of potential counterparties” sub-processcomponent establishes a list of potential counterparties (if any)willing to offer the product sought by the ordering party, upon theirreceipt from the ordering party of a consideration they deem to beappropriate (this sub-process draws principally on the data-file, PDEALLIST).

[0439] The individual potential-counterparties pricing calculationssub-process component utilises the above-described pricing parameterspre-specified by each short-listed potential counterparty to calculatethe “bid” each of them is prepared to make on the ordering-party'sproduct order (or part thereof), and to add these to the potentialcounterparties short-list file (this sub-process draws principally onthe data-fie, PSEL PRICE).

[0440] The “counterparty selection” sub-process component extracts fromthe above-described “potential-counterparties short-list” file the bestpossible counterparty(ies) for the ordering party's transaction,according to the application promoter-specified “matching rules”embodied in the APP, taking into account whatever matching constraintsall applicable APP stakeholders may have prespecified. This selectionbeing made, and the price bid being within the allowable limitsspecified by the ordering party, and there being no requirements formanual-approval intervention by any relevant stakeholder, a matchedorder is deemed to be in existence (this sub-process draws principallyon the data-file, PSEL LIMIT).

[0441] The matched order confirmation sub-process effectively secures,automatically, the positive agreement of all affected stakeholders tothe contract, including confirmation of the product ordering party'sability to immediately pay (or be granted counterparty credit, orordering party guarantor credit, for) the required contractconsideration (and possible other applicable fees). Automatic approvalsof contracts are made by the CONTRACT APP electronically transferringresources recorded in the ordering party's applicableconsideration/entitlement transfer entity account to the account of theapplicable counterparty (See Appendix H for a description of theconsideration/entitlement “payment” process). In turn, automatic updatesof the counterparty's matching constraints maintained in the file PSELLIMIT are made.

[0442] Upon completion of the above-described processing steps:unmatched order transactions are written to the file, PORD QUEUE, forsubsequent match attempts; matched and confirmed order transactions areconfirmed to the relevant CONTRACT APP stakeholders (this processdrawing principally on the data-file, ADMIN) and are written to the filePORD CONF for subsequent “back-office” processing; and relevant CONTRACTAPP stakeholders are notified of rejected orders (again,this processdrawing principally on the data-file, ADMIN), records of this beingwritten to the file PORD REJ for subsequent “back-office” processing. Acopy of all processing outputs is written to the file, HISTORY.

[0443] Process 3

[0444] Process 3 handles the receipt and processing of “secondary” riskmanagement contract transactions (this term being defined in AppendixD). Like “primary” risk management contracts, “secondary” riskmanagement contracts are of multiple types (detailed in Appendix B);various sub-processes of Process 3 handle the receipt and processing ofall possible types of these transactions, including product orderprocessing, product price indications, and withdrawals of existingproduct orders.

[0445] “Secondary product orders” constitute the core “secondary” riskmanagement contract transaction type (FIG. 20 provides a summary flowchart of the processing of this transaction type).

[0446] “Secondary” product orders incorporate the following key items ofinformation: potential acquiring party identification information; thepre-established Order ID reference to the sought-after primary contract;the potential acquiring party's interest or otherwise in being grantedcredit by offering parties for the yet-to-be-determined contractacquisition amount; the acquiring party's interest or otherwise inavailing themselves of the possible netting and other features of theAPP concerned; the acquisition “price” range within which the potentialacquiring party is prepared to “pay” for the contract they havespecified; other dimensions of the potential acquiring party's needs;and the consideration/entitlement transfer entity accounts from which/towhich they wish to have relevant “payments” made/received. Theabove-described information is, upon receipt, written to—andsubsequently processed from—the file SORD NEW.

[0447] Three sub-processes are involved in processing secondary productorders—order authorisation, order matching, and matched orderconfirmation. In the case of the anticipated most typical form of order,termed a “normal-automatic” secondary product order these sub-processesfunction as follows:

[0448] The secondary product order authorisation sub-process verifiesthat all orders contain data appropriate to the contract sought and thateach potential acquiring party is accurately identified andcredentialled (this sub-process draws principally on the data-file,SPRODUCT).

[0449] The secondary product order matching sub-process locatessought-after contract records and, based on the contents of theserecords, determines whether a “sale” of the position of the specifiedstakeholder in the contract to the potential acquiring party ispossible—in particular, whether the acquisition “price” range withinwhich the potential acquiring party has specified it is prepared to“pay” for the position of the specified current stakeholder is equal to,or in excess of, the “allowable sale price” figure prespecified by theapplicable contract stakeholder. If a contract “sale” is found to bepossible, and there being no requirements for manual-approvalintervention by any relevant stakeholder, a “match” is deemed to haveoccurred.

[0450] The secondary product matched order confirmation sub-processeffectively secures, automatically, the positive agreement of allaffected stakeholders to the contract position “sale”, includingconfirmation of the contract acquiring party's ability to immediatelypay (or be granted current stakeholder credit, or acquiring partyguarantor credit, for) the required “sale price” consideration (andpossible other applicable fees). Automatic approvals of such “sales” aremade by the CONTRACT APP electronically transferring resources recordedin the acquiring party's applicable consideration/entitlement transferentity account to the account of the applicable current contractstakeholder.

[0451] Upon completion of the above-described processing steps:unmatched order transactions are written to the file, SORD QUEUE, forsubsequent match attempts; matched and confirmed order transactions areconfirmed to the relevant CONTRACT APP stakeholders (this processdrawing principally on the data-file, ADMIN), required records beingwritten to the file SORD CONF for further “back-office” processing asrequired; and rejected order transactions are similarly notified to therelevant CONTRACT APP stakeholders (again, this process drawingprincipally on the data-file, ADMIN), required records being written tothe file SORD REJ for further “back-office” processing. A copy of allprocessing outputs is written to the file, HISTORY.

[0452] Process 4

[0453] Process 4 handles the receipt and processing of“derivative-primary” risk management contract transactions (this termbeing defined in Appendix D). Like “primary” risk management contracts,“derivative-primary” risk management contracts are of multiple types(detailed in Appendix B); various sub-processes of Process 4 handle thereceipt and processing of all possible types of these transactions,including product order processing, product price indications, andexisting product order withdrawals.

[0454] “Product option orders” is one illustrative “derivative-primary”risk management contract transaction type (FIG. 21 provides a summaryflow chart of the processing of this transaction type).

[0455] “Derivative-primary” product option orders incorporate thefollowing key items of information (detailed in Appendix B): orderingparty identification information; CONTRACT APP application and productidentification information; “other stakeholder involvement” information;the ordering party's desired form of product specification (directlyinput as entitlement coordinates or as mathematical function(s)); whenthe order specification is by way of a single-dimensional mathematicalfunction, the parameters of such a function (which can include: the term“X”, the term “Alpha (X)”, the term “Beta (X)”, the term “Gamma (X-1)”;the contract consideration and entitlement “denomination type”,“currency (if applicable)” and “national currency (if applicable)”; theordering party's interest or otherwise in being granted credit bypotential counterparties for the yet-to-be-determined contract optionconsideration amount; the ordering party's interest or otherwise inavailing themselves of the possible netting and collateralisationfeatures of the APP concerned; the consideration “price” range withinwhich the ordering party is prepared to “pay” for their defined productoption; miscellaneous other dimensions of the ordering party's needs,and the consideration/entitlement transfer entity accounts from which/towhich they wish to have relevant “payments” made/received). Upon itsreceipt, all of this information is written to—and subsequentlyprocessed from—the file DPORD NEW.

[0456] Three sub-processes are involved in processing derivative-primaryproduct orders—order authorisation, order matching, and matched orderconfirmation. In the case of the most likely form of the above-mentionedillustrative option order, termed a “normal-automatic”derivative-primary product option order (see Appendix 5 for details)these sub-processes function as follows:

[0457] The primary product option order authorisation sub-processverifies that all orders contain data appropriate to the product optionbeing sought and that each ordering party is accurately identified andcredentialled (this sub-process draws principally on the data-file,DPPRODUCT).

[0458] The primary product option order matching sub-process locates thebest possible counterparty(ies) for the ordering party's transactionaccording to the application promoter-specified “matching rules”embodied in the APP; it does this utilizing three componentsub-processes, termed: short-listing of potential option-counterparties,individual potential option-counterparty “pricing” calculations, andoption-counterparty selection.

[0459] The “short-listing of potential option-counterparties”sub-process component establishes a list of potentialoption-counterparties (if any) willing to offer the product optionsought by the ordering party, upon their receipt from the ordering partyof an option consideration they deem to be appropriate (this sub-processdraws principally on the data-file, DPDEAL LIST).

[0460] The “individual potential option-counterparties pricingcalculations” sub-process component utilises the above-described pricingparameters prespecified by each short-listed potentialoption-counterparty to calculate the “bid” each of them is prepared tomake on the ordering-party's product option order (or part thereof), andto add these to the potential option-counterparties short-list file(this sub-process draws principally on the data-file, DPSEL PRICE).

[0461] The “option-counterparty selection” sub-process componentextracts from the above-described “potential option-counterpartiesshort-list” file the best possible counterparty(ies) for the orderingparty's transaction, according to the application promoter-specified“matching rules” embodied in the APP, taking into account whatevermatching constraints all applicable APP stakeholders may haveprespecified. This selection being made, and the price bid being withinthe allowable limits specified by the ordering party, and there being norequirements for manual-approval intervention by any relevantstakeholder, a matched option order is deemed to be in existence (thissub-process draws principally on the data-file, DPSEL LIMIT).

[0462] The matched option order confirmation sub-process effectivelysecures, automatically, the positive agreement of all affectedstakeholders to the options contract, including confirmation of theproduct-option-ordering party's ability to immediately pay (or begranted counterparty credit, or ordering party guarantor credit, for)the required option product consideration (and possible other applicablefees). Automatic approvals of contracts are made by the CONTRACT APPelectronically transferring resources recorded in the ordering party'sapplicable consideration/entitlement transfer entity account to theaccount of the applicable counterparty (this process being detailed inAppendix H). In turn, automatic updates of the option-counterparty'smatching constraints maintained in the file DPSEL LIMIT are made.

[0463] Upon completion of the above-described processing steps:unmatched option-order transactions are written to the file, DPORDQUEUE, for subsequent match attempts; matched and confirmed option-ordertransactions are confirmed to the relevant CONTRACT APP stakeholders(this process drawing principally on the data-file, ADMIN) and arewritten to the reference file DP MSTR, and the file DPORD CONF forsubsequent “back-office” processing; and relevant CONTRACT APPstakeholders are notified of rejected orders (again, this processdrawing principally on the data-file, ADMIN), records of this beingwritten to the file DPORD REJ for subsequent “back-office” processing. Acopy of all processing outputs is written to the file, HISTORY.

[0464] If/when an option-holder wishes to exercise its option over apre-established contract, it does so by appropriately notifying theCONTRACT APP which, in turn, retrieves the contract record from DPMSTR,effects the necessary additional consideration payments, and writes anew record to PORD CONF for subsequent back office processing. Asdescribed above, the appropriate HISTORY and other files are updated inthis process.

[0465] Process 5

[0466] Process 5 handles the receipt and processing of“derivative-secondary” risk management contract transactions (this termbeing defined in Appendix D). Like “secondary” risk managementcontracts, “derivative-secondary” risk management contracts are ofmultiple types (detailed in Appendix B); various sub-processes ofProcess 5 handle the receipt and processing of all possible types ofthese transactions, including product order processing, product priceindications, and withdrawals of existing product orders.

[0467] “Product option orders” is an illustrative “derivative-secondary”risk management contract transaction type (FIG. 22 provides a summaryflow chart of the processing of this transaction type).

[0468] “Derivative-secondary” product option orders incorporate thefollowing key items of information: potential acquiring partyidentification information; the preestablished Order ID reference to thesought-after primary contract (in relation to which an option is to bepurchased or sold); the potential acquiring party's interest orotherwise in being granted credit by offering parties for theyet-to-be-determined option contract acquisition amount; the acquiringparty's interest or otherwise in availing itself of the possible nettingand other features of the APP concerned; the acquisition “price” rangewithin which the potential acquiring party is prepared to “pay” for thecontract option they have specified; other dimensions of the potentialacquiring party's needs; and the consideration/entitlement transferentity accounts from which/to which they wish to have relevant“payments” made/received. The above-described information is, uponreceipt, written to—and subsequently processed from—the file DSORD NEW.

[0469] The subprocesses involved in the processing ofderivative-secondary product option orders are essentially a combinationof the processes described above in the case of secondary product orders(Process 3) and derivative-primary product option orders (Process 4). Atthe completion of the matching process, matched orders are written tothe reference file DSMSTR and the file DSORD CONF for subsequent backoffice processing.

[0470] If/when an option holder wishes to exercise its option over apre-established contract, it does so by appropriately notifying theCONTRACT APP which, in turn, retrieves the contract record from DSMSTR,effects the necessary additional consideration payments, and writes anew record to SORD CONF for subsequent back office processing. Asdescribed above; the appropriate HISTORY and other files are updated inthis process.

[0471] Process 6

[0472] Process 6 handles the “back office” management of“matched/confirmed” primary, secondary, derivative-primary, andderivative-secondary risk management contract transactions andtransactions handled by Processes 7-9. The process incorporates multiplesub-processes, collectively accessing multiple data files (FIG. 23):primary risk management contract back office processing; secondary riskmanagement contract back office processing; derivative-primary riskmanagement contract back office processing; derivative-secondary riskmanagement contract back office processing; “Process 7” transactionsback office processing; “Process 8” transactions back office processing;and “Process 9” transactions back office processing.

[0473] In relation to the back-office management of confirmed/matchedprimary risk management contracts—a number of sub-processes areinvolved, including: Receipt of the previous operating day's“matured-contract actual product event value” sub-process; “Start-of-dayPAYACC management” sub-process; Contract maturity managementsub-process; Confirmed contract processing sub-process; Informationcompilation and distribution sub-process; Information extraction fromprimary orders sub-process; Contract valuation sub-process; Contractcollateralisation payments sub-process; System Access and usage feedetermination and payments sub-process; Bilateral obligations nettingsub-process; Multilateral obligations netting sub-process; Bilateralpayments netting sub-process; Multilateral payments netting sub-process;and “end-of-day PAYACC management” sub-process.

[0474] Receipt of the previous operating day's “matured-contract actualproduct event value” details. This sub-process is flowcharted in FIG.24; it involves the applicable CONTRACT APP receiving “matured-contractactual product event value” details from the relevant product sponsors(external to INVENTCO).The primary data-file, MAT PROD VALUES, isupdated with this information. The support data-files, ADMIN, HISTORY,and INFO are similarly updated with applicable information.

[0475] “Start-of-day” PAYACC management. This sub-process is flowchartedin FIG. 25; it involves the applicable CONTRACT APP receivingconsideration/entitlement “actual account” opening-balances fromparticipating consideration/entitlement transfer entities (external toINVENTCO) (see Process 7 for details). The primary data-files, PAYACCSHADOW and PAYACC FINAL are updated with this information. The supportdata-files, HISTORY, INFO and ADMIN, are similarly updated withapplicable information.

[0476] Contract maturity management. This subprocess is flowcharted inFIG. 26; it involves the applicable CONTRACT APP determining and givingeffect to primary and related entitlement-transfers to/from applicableCONTRACT APP stakeholders, applicable other INVENTCO stakeholders, wheresuch transfers are principally reflected in entries to the data-file,PAYACC SHADOW. CONTRACT APP determines and gives effect to thesetransfers, principally by drawing upon product/contract informationmaintained in the data files, INTREG, MAT PROD VALUES, COLLAT, CREDITMGMT, BILAT OBLIG NET, and MULTILAT OBLIG NET. These data-files areappropriately updated in the process as are the support data-files,ADMIN, HISTORY, TAX/SUB, PAYACC SHADOW and INFO.

[0477] Confirmed contract processing. This sub-process, flowcharted inFIG. 27, operates continually throughout each operating day. Details ofnew matched/confirmed contracts are read from the file PORD CONF and arethen time-stamped and written to the file INTREG as two records—onerecord pertaining to the contract ordering party and the other to thecontract counterparty. The support data files, INFO, ADMIN, and HIISTORYare appropriately updated in the process.

[0478] Information compilation and distribution. This sub-process,flowcharted in FIG. 28, operates continually (beyond a defined operatingday ), drawing on the data-file INFO. As already described, INFO isupdated continually as CONTRACT APP and other INVENTCO events occur,including pertinent AXSCO message information written in the firstinstance to HISTORY. All relevant INVENTCO stakeholders have access topreauthorised parts of INFO.

[0479] Information extraction from primary orders. This sub-process,floweharted in FIG. 29, is effected after the completion of the definedoperating day. Essentially, it involves the single task of processingthe data-file, HISTORY, to yield pertinent information for the data-fileINFO. One of the most important items of information drawn from HISTORYis (confidential) information on all of the prior day's potentialcounterparty consideration bid parameters, in particular the data itemstermed “assessed probabilities of occurrence”. This information yields“market” information for the subsequent contract valuation sub-process.

[0480] Contract valuation. This sub-process, floweharted in FIG. 30,draws principally upon the above-described “markets” informationpreviously written to INFO. Pertinent data from this file is “appliedagainst” all outstanding contracts maintained in INTREG, therebyyielding updated “future product value (FPV)”, “expected value” and“distribution” value information for all contracts and, from this,revaluations of all future entitlement “expected values” and“distribution” values. All these revaluation figures are maintained inINTREG with applicable information also being written to INFO andHISTORY.

[0481] Contract collateralisation payments. This sub-process,flowcharted in FIG. 31, draws principally on the data-file INTREG.Following the contract valuation process, this collateralisation processinvolves relevant INTREG records being read and, depending (amongstother things) on the precalculated “present value” of the expectedfuture entitlement associated with each relevant contract, a calculatedportion of the present value of the expected future consideration amountis debited or credited to the PAYACC SHADOW file of the applicablecollateralisation trustee entity, and the product ordering party and/orcounterparty as is applicable.

[0482] Generally, if the most recent precalculated “present value” ofthe expected future entitlement associated with each relevant contractindicates a negative contract value, and if this negative value exceedsthe prior contract valuation figure, the applicable entity's trustaccount is credited with the funds difference, with the entity's ownconsideration/entitlement transfer entity account being debitedcorrespondingly. If this negative value does not exceed the priorcontract valuation figure, the applicable entity's trust account isdebited with the funds difference, with the entity's ownconsideration/entitlement transfer entity account being creditedcorrespondingly. On the other hand, if the most recent precalculated“present value” of the expected future entitlement associated with eachrelevant contract indicates a positive contract value, the onlycollateralisation payment adjustment called for is one in which allfunds (if any) in the applicable entity's trust account are transferredto the entity's own consideration/entitlement transfer entity account.In each of the above-described cases, a record of all entries effectedis written to the data-file, COLLAT, and a subset of this information iswritten to the data-files HISTORY and INFO.

[0483] System Access and usage fee determination and payments. Thissubprocess, flowcharted in FIG. 32, deals with the determination andpayment of system access and usage fees (as distinct from contractmaturity date fee payments). The function draws principally on thedata-files ADMIN, and HISTORY. Fee payment parameters are maintained indata-file ADMIN. These parameters are applied against the day's newrecords already written to HISTORY. Debits and credits for fees sodetermined are written to PAYACC SHADOW with summary information writtento INFO and HISTORY.

[0484] Bilateral obligations netting. This subprocess, flowcharted inFIG. 33, effectively maintains an up-to-date matrix of the presentvalues of expected future entitlement (and other) obligations betweenpairs of participating ordering parties and counterparties (as well asother participating CONTRACT APP and INVENTCO stakeholders), continuallyadjusted on the basis of required current consideration, entitlement andother payments/receipts as they occur. As required, the function updatesthe above-described matrix in two stages. First, with the most recentcontract revaluation figures contained within INTREG. And second, withthe end-of-day payment/receipt amounts contained within PAYACC SHADOW.Consideration/entitlement transfer entity transfers from/to applicableentities are determined (according to the application-promoter specifiedparameters for so doing) on the basis of whether or not any/all of theadjusted bilateral present value figures are in excess of theirallowable limits. These entries are written to PAYACC SHADOW, with thedata-files BILAT OBLIG NET, INTREG, HISTORY, and INFO being subsequentlyupdated.

[0485] Multilateral obligations netting. This subprocess, flowcharted inFIG. 34, is essentially the same as the bilateral netting functionexcept that a specified “clearing/trustee” entity is effectivelyinterposed between all bilateral counterparties and, as such, nettedobligations are only between the specified “clearing house/trustee”entity and each participating entity.

[0486] Bilateral payments netting. This subprocess, flowcharted in FIG.35, is independent of the above-described bilateral and multilateralobligations netting subprocesses. The subprocess operates by producing amatrix of bilaterally netted payments/receipts based on recordscontained in the data-file, PAYACC SHADOW. Single netted payment/receiptfigures are then rewritten to PAYACC SHADOW, with the data-files BILATPYMTS NET, ADMIN, HISTORY and INFO being subsequently updated.

[0487] Multilateral payments netting. Like bilateral payments netting,this subprocess, flowcharted in FIG. 36, is independent of theabove-described bilateral and multilateral obligations nettingsubprocesses. The subprocess operates by producing a matrix ofbilaterally netted payments/receipts to/from the applicable “clearinghouse/trustee” entity based on records contained in the data-file,PAYACC SHADOW. Single netted payment/receipt figures (to/from the“clearing house/trustee” entity) are then rewritten to PAYACC SHADOW,with the data-files MULTILAT PYMTS NET, ADMIN, HISTORY and INFO beingsubsequently updated.

[0488] “End-of-day” PAYACC management. This subprocess, flowcharted inFIG. 37, involves a three-stage process. First, the preparation ofinter-consideration/entitlement transfer entity “balancing”transactions. Second, the transfer of the final contents of the PAYACCSHADOW data-file to the data-file, PAYACC FINAL. And third, theelectronic transmission of the contents of PAYACC FINAL to theapplicable consideration/entitlement transfer entities (external toINVENTCO). In turn, the subsidiary data-files, ADMIN, HISTORY, and INFOare updated.

[0489] Process 7

[0490] Process 7 handles non-CONTRACT APP-related obligation transfersbetween applicable INVENTCO stakeholders, that is, the transfer ofownership title over “assets” registered by INVENTCO—typicallymatched/confirmed contracts (recorded as CONTRACT APP INTREG records)and consideration/entitlement transfer entity resources (recorded asPAYACC records). Both of the above-mentioned items have value to theirholder. This process enables holders of these items to assign or lendany portion of their holdings to others at their will through initiatingthe appropriate transactions as NCAROT TRANS. The process accesses arelatively small number of data files (See FIG. 38). NCAROT TRANSreceived result in appropriate updates to the primary data-files, PAYACCSHADOW and INTREG. In turn, the subsidiary data files, HISTORY, ADMINand INFO are updated.

[0491] Process 8

[0492] Process 8 (flowcharted in FIG. 39) handles CONTRACT APP (andother INVENTCO) stakeholder shared-access to specialist systems toassist them decide how best to interface with one or more aspects ofINVENTCO. In the case of CONTRACT APP stakeholders, the most likelyusers of this process, one collection of such specialist systems aretermed “decision support systems”. The purpose of these systems is toguide a user-stakeholder as to how it should react to/deal with thecontinually changing circumstances within the CONTRACT APP with whichthey are dealing. Different clusters of systems are applicable fordifferent CONTRACT APP stakeholders. These systems involve a hierarchyof potentially any number of value-added components.

[0493] An example of one such system, useful to primary product orderingparties, is a system which helps an ordering party determine which ofits prespecified, but as yet unmatched, orders it should withdraw andwhich of its potential new product orders it should submit. This systemis in the form of a “utility optimization” mechanism which seeks toidentify the best possible composition of outstanding orders (and thus,which existing, unmatched orders should be withdrawn and which neworders should be submitted) based on two things. First, an objectivefunction which seeks to minimize the difference between a weighted sumof actual and desired values of a series of attributes (involving singleor multiple products, covering the ordering party's “real businessexposure” to each product, the ordering party's portfolio of contractswhich have been “matched” but are not yet confirmed, orders which havebeen submitted but not yet matched, and potential yet-to-be-submittedorders (collectively termed the “buyer's objective portfolio” ), theseattributes including, amongst other things: the “expected value” of theobjective portfolio; the “standard deviation” of the objectiveportfolio; the “incremental cash outflow” attribute of the objectiveportfolio; the “maximum absolute loss” attribute of the objectiveportfolio; the “expected loss” attribute of the objective portfolio; the“implied minimum return on investment” of the objective portfolio; andthe “implied expected return on investment” of the objective portfolio.And second, a series of constraints specifying, amongst other things:the required “minimum values” of each objective function attribute; andrequired minimum product-shares in the ordering party's overall productportfolio. The mathematical form of this “optimization” could take anyof a number of alternative forms.

[0494] An optimization mechanism similar to the one described above canalso aid potential counterparties in defining their pricing parametersfor application against incoming product orders.

[0495] Effectively, systems of the above-described type are collectivelymaintained as a software “library” within the applicable CONTRACT APP(although they may also be loaned by VIRPRO-authorised entitiesindependent of INVENTCO and/or acquired by VIRPRO-authorised partieswhether they are INVENTCO stakeholders or not). CONTRACT APP (and otherINVENTCO) stakeholder requests to make use of software within thislibrary are received by way of records in the file, SSA TRANS. Theserequests result in the appropriate records in the file SSA beingaccessed and made available for use via AXSCO and the applicableentity's authorised electronic link to INVENTCO. Appropriate records ofthe utilization of SSA records are written to the data-files HISTORY,ADMIN and INFO.

[0496] Process 9

[0497] Process 9 (flowcharted in FIG. 40) handles CONTRACT APP (andother INVENTCO) stakeholder shared-access to a range ofINVENTCO-facilitated value added services. These services can include:accounting, reconciliation, and information services; value addedinformation reseller services; financial services of multiple types; anddata processing and telecommunications services. Effectively, softwarerelating to these services is maintained as a software “library” withinthe applicable CONTRACT APP (although they may also be loaned byVIRPRO-authorised entities independent of INVENTCO and/or acquired byVIRPRO-authorised parties whether they are INVENTCO stakeholders or not). CONTRACT APP (and other INVENTCO) stakeholder requests to make use ofsoftware within this library are received by way of records in the file,VAS TRANS. These requests result in the appropriate records in the fileVAS being accessed and made available for use via AXSCO and theapplicable entity's authorised electronic link with INVENTCO.Appropriate records of the utilization of VAS records are written to thedata-files HISTORY, ADMIN and INFO.

APPENDIX D

[0498] Risk Management Contracts

[0499] Risk management contracts is a term used to refer to one type ofcontractual obligation which can be, but does not need to be,traded/exchanged/transferred, and subsequently processed and settled,using an INVENTCO system. Risk management contracts consist of “primary”isk management contracts; “secondary” risk management contracts;“derivative-primary” risk management contracts; and“derivative-secondary” risk management contracts.

[0500] “Primary” risk management contracts can be “simple” and “complex”in nature (“simple” contracts being derivatives of “complex” contracts).

[0501] A “simple” primary risk management contract is a tradeable oruntradeable contract conveying an obligation on an entity, upon thatentity being granted a consideration by another entity (or accepting apledge to be granted a consideration by the other entity), to make anentitlement to that other entity depending on the value of a definedphenomenon, determined at a defined time in the future.

[0502] A “complex” primary risk management contract is a tradeable oruntradeable contract conveying an obligation on either or both of twoentities, upon one entity [usually] being granted a consideration by theother entity (or accepting a pledge to be granted a consideration by theother entity), to make an entitlement to pay/receive an entitlement fromone another, depending on the value of a defined phenomenon, determinedat a defined time in the future. A “complex” contract may, in turn, be“basic” or “advanced” in nature: a “complex-basic” contract being onethat does not involve ordering party and/or matched order counterparty“collateralisation payments” to a third-party trustee or clearing entityduring the life of a contract; and a “complex-advanced” contract beingone that does involve ordering party and/or matched order counterparty“collateralisation payments” to a third-party trustee or clearing entityduring the life of a contract.

[0503] “Secondary” risk management contracts are pre-existing “primary”risk management contracts offered for trade (individually or as aportfolio) by a “risk-counterparty” stakeholder to the underlyingcontract.

[0504] “Derivative-primary” risk management contracts are optionscontracts, or futures contracts, or forward contracts, or forward rateagreements, or swaps, or like financial instruments based on specified,but yet-to-be-established, primary risk management contracts.

[0505] “Derivative-secondary” risk management contracts are optionscontracts, or futures contracts, or forward contracts, or forward rateagreements, or swaps, or like financial instruments based onpre-existing primary risk management contracts (which may have beentraded since they were first established), including instruments basedon: specified, but yet-to-be established, secondary risk managementcontracts; and the intended tertiary trading/exchange/transfer ofspecified, established, secondary risk management contracts.

I claim:
 1. A data processing system to enable the formulation ofmulti-party risk management contracts, the system comprising: inputmeans by which an ordering party can input contract data representing anoffered contract for a predetermined phenomenon, the phenomenon having afuture range of possible outcomes at a time of maturity, and saidcontract data specifying the same entitlement for each said outcome dueto the ordering party and a consideration due to a counterparty, and atleast one counterparty can input registering data for said predeterminedphenomena; and data processing means for pricing and matching contractsfrom said contract data and said registering data, said pricingincluding calculating a counter consideration from each said registeringdata, and said matching including comparing said consideration with eachsaid counter consideration to match an offered contract with at leastone of said counterparties.
 2. A data processing system as claimed inclaim 1, wherein said registering data for each possible outcome is thecounterparty assessed probability of that outcome eventuating atmaturity.
 3. A data processing system as claimed in claim 1 or claim 2,wherein the contract match is made with the counterparty having thecounter consideration having the greatest difference between it and thespecified consideration.
 4. A data processing system as claimed in claim1, wherein the entitlement is due at maturity.
 5. A method to enable theformulation of multi-party risk management contracts, the methodcomprising the steps of: (a) inputting to data processing apparatus, byinput means, ordering data contract data representing an offeredcontract for a predetermined phenomenon, the phenomenon having a rangeof possible outcomes at a time of maturity, said contract dataspecifying the same entitlement for each said outcome due to theordering party and a consideration due to a counterparty; (b) inputtingto said data processing apparatus, by input means, counterpartyregistering data relating to the range of possible outcomes for saidpredetermined phenomenon; and (c) pricing and matching the offeredcontract, by the data processing apparatus, comprising the steps of: (i)calculating a counter consideration from each counterparty registeringdata; (ii) comparing said consideration with each said counterconsideration; and (iii) matching the contract on the basis of thecomparison.
 6. A method as claimed in claim 5, comprising the furtherstep of payment of the consideration by the matched counterparty to theordering party on matching of the contract.
 7. A method as claimed inclaim 5 or claim 6, comprising the further step of payment of theentitlement by the ordering party to the counterparty on maturity of thecontract.
 8. A method as claimed in any one of claims 5 to 7, wherebythe step of matching includes selecting the counterparty having thecounter consideration having the greatest difference between it and thespecified consideration.
 9. A method as claimed in any one of claims 5to 8, wherein said registering data is the assessed probability ofoccurrence of each possible outcome, and whereby said counterconsideration is calculated by the summation over all possible outcomesof the product of the respective entitlement and the assessedprobability.
 10. A data processing system to enable the formulation ofmulti-party risk management contracts, the system comprising: inputmeans by which an ordering party can input contract data specifying anentitlement due to the ordering party and a consideration due to acounterparty, both the entitlement and the consideration being due onmatch of a contract, and at least one counterparty can input counterconsiderations for the contract relevant to a range of possibleentitlements; and data processing means for matching a contract fromsaid consideration and the counter consideration for the specifiedentitlement by comparing said consideration with each said counterconsideration to match an offered contract with at least one of saidcounterparties.
 11. A data processing system as claimed in claim 10,wherein the contract match is made with the counterparty having thecounter consideration having the greatest difference between it and thespecified consideration.
 12. A data processing system as claimed ineither one of claims 10 or 11, wherein the contract matures on matching.13. A method to enable the formulation of multi-party risk managementcontracts, the method comprising the steps of: (a) inputting to dataprocessing apparatus, by input means, ordering party contract dataspecifying an entitlement due to the ordering party and a considerationdue to a counterparty, both the entitlement and the consideration due onmatch of a contract; (b) inputting to said data processing apparatus, byinput means, counterparty counter considerations for the contractrelevant to a range of possible entitlements; and (c) matching theoffered contract, by the data processing apparatus, comprising the stepsof: (i) comparing said consideration with said counter consideration forthe specified entitlement; and (ii) matching the contract on the basisof the comparison.
 14. A method as claimed in claim 13, whereby the stepof matching includes selecting the counterparty having the counterconsideration having the greatest difference between it and thespecified consideration.
 15. A method as claimed in either one of claims13 or 14, comprising the further step of the contract maturing on match.16. A data processing system to enable the management of risk by theformulation of risk management contracts, the system comprising: datainput means by which participating parties can input data concerning atleast one predetermined phenomenon, each phenomenon having a range ofpossible outcomes and a future time of maturity, and data processingmeans, coupled to each input means, for pricing and matching contractsbetween participating parties, and wherein each contract is priced andmatched on the basis of offering data specifying entitlements due atmaturity for the range of possible outcomes for one or more of saidphenomena, and registering data of the likelihood of each outcome insaid predetermined range of outcomes at maturity for one or more of saidphenomena, said offering data and said pricing data being derived fromsaid participating party data.
 17. A data processing system as claimedin claim 16, wherein said participating party data includes an attitudeand/or objective to said one or more phenomena.
 18. A data processingsystem as claimed in claim 16 or 17, wherein said participating partydata further includes offering data and/or pricing data.
 19. A methodfor enabling the management of risk by the formulation of riskmanagement contracts, the method comprising the steps of: participatingparties inputting, by at least one data input means, data concerning atleast one predetermined phenomenon, each said phenomenon having a rangeof future outcomes and a future time of maturity; and pricing andmatching contracts between participating parties, by data processingmeans, whereby each contract is priced and matched on the basis ofoffering data specifying entitlements due at maturity for the range ofpossible outcomes for one or more of said phenomena, and registeringdata of the likelihood of each outcome in said predetermined range ofoutcomes at maturity for one or more of said phenomena, said offeringdata and said pricing data being derived from said participating partydata.
 20. A method as claimed in claim 19, whereby said participatingparty data includes an attitude and/or objective to said one or morephenomena.
 21. A method as claimed in claims 19 or 20, whereby saidparticipating party data further includes offering data and/or pricingdata.
 22. A data processing system to enable the formulation ofmulti-party risk management contracts, the system comprising: inputmeans by which an ordering party can input contract data representing anoffered contract for a predetermined phenomenon, the phenomenon having afuture range of possible outcomes at a time of maturity, and saidcontract data specifying the same entitlement for each said outcome dueto the ordering party, and at least one counterparty can inputregistering data for said predetermined phenomena; and data processingmeans for pricing and matching contracts from said contract data andsaid registering data, said pricing including calculating aconsideration due to the counterparty from each said registering data,and said matching including comparing said considerations to match anoffered contract with at least one of said counterparties.
 23. A dataprocessing system as claimed in claim 22, wherein only thosecounterparty considerations that satisfy a threshold considerationspecified by the ordering party are compared.
 24. A method to enable theformulation of multi-party risk management contracts, the methodcomprising the steps of: (a) inputting to data processing apparatus, byinput means, ordering data contract data representing an offeredcontract for a predetermined phenomenon, the phenomenon having a rangeof possible outcomes at a time of maturity, said contract dataspecifying the same entitlement for each said outcome due to theordering party; (b) inputting to said data processing apparatus, byinput means, counterparty registering data relating to the range ofpossible outcomes for said predetermined phenomenon; and (c) pricing andmatching the offered contract, by the data processing apparatus,comprising the steps of: (i) calculating a consideration due to eachcounterparty from each counterparty registering data; (ii) comparingsaid calculated considerations; and (iii) matching the contract on thebasis of the comparison.
 25. A method as claimed in claim 24, wherebythe step of comparing further includes accepting only those counterpartyconsiderations that satisfy a threshold consideration specified by theordering party.